JOYY Inc.
Q3 2013 Earnings Call Transcript

Published: 10 Nov 2013

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the YY Inc. Third 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) At this point, I would like to hand the call over to Ms. Anna Yu, YY’s Investor Relations Manager. Thank you. Please go ahead.

[Anna Yu:]

Thank you, Operator. Welcome to YY’s third quarter 2013 earnings conference call. With us today are Mr. David Xueling Li, CEO of YY; and Eric He, CFO. Following management’s prepared remarks we will conduct a Q&A session. 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, I would now like to turn the conference call over to our CEO, Mr. David Li.

[David Xueling Li:]

Thank you, Anna. Good morning and good evening, everyone. We are pleased to report another strong quarter that we saw robust performance both operationally and financially, as well as strong progress in key strategic area, which will surpass future growth. In the third quarter, we saw aggregate monthly active user increased by 4% quarter-over-quarter to 87.2 million. We began to use this metric last quarter and believe this metric provides a full picture of our overall platform engagement, interaction and reach. With the expansion of our platform and the success of several recent initiatives, we have been able to greatly increase our revenues by over 113% year-over-year and the net income by over 267%. Allow me to further outline the key area of focus for today’s call. First, the strong growth our music platform, which reflects both the advantage of our business model and the success of our recent collaboration with Hunan TV’s, Happy Boy Show. Second, YY Mobile climbed, as well as new work and initiatives going forward. Third, our CFO, Eric, will update you on the continued development of our gaming platform. And lastly, Eric will go through our third quarter financial results in detail. Getting started, our collaboration with Hunan TV’s Happy Boy Show was a great success and helped to continued to the overall outperformance of our YY Music platform. In Italy, we had expected this event to be a good experiment for YY and help broaden our user base appeal. We aimed to learn the necessary content and production skill to host a similar event in the future, as well as improve the interactive capability amongst users and the channel cost, which will help to improve revenue generation capabilities. Not only it will allow but we also were able to attract a significant number of new paying and non-paying users to our platform. In fact, we increased our music paying user by over 117% year-over-year to over 770,000. The heavy growth on the music side support -- supported overall YY climbed to paying user growth, which reached 1.3 million, growing at a rate of 48% year-over-year. Additionally, this collaboration has paid some intangible dividends. It has given that the YY interactive experience and the user culture, as well as elevated our brand reputation in China. On the Mobile YY front, we saw monthly active users of our Mobile platform increased 19% quarter-over-quarter and 94% year-over-year to over 17 million. Average monthly installation for the quarter increased 78% year-over-year to 6 -- 4.6 million per month. This performance allowed us to begin monetization on this platform in multiple ways during the quarter. In addition, we launched our mobile gaming platform and are actively building up our gaming portfolio. In this beginning stage, we remain more focused on the development of the platform and the expansion of its user base. As we head into 2014, we will continue to focus heavily on suggesting our monetization efforts on the Mobile front. On the Education front, we have also continued to explore opportunities and develop capabilities for this vertical. We continued to see strong growth in the number of teachers on the platform, which increased by 29% quarter-over-quarter reached to 125,000. We are confident both in the long-term growth prospects associated with the online education sector in China, as well as our internal capabilities to successful expand deeper into this vertical. Consequently, we are committed to exploring opportunities -- exploring options and making strategic investments at the right time and upon the right opportunity. Lastly, as you have read earlier, we have announced the resignation of our CTO, Tony Zhao, even though Tony will no longer be our CTO, we are excited to partner with him in a strategic partnership that will be based in Silicon Valley and we’ll be focused on leveraging YY strong real-time interactive platform to help us expand into promising new verticals internationally. We look forward to working with Tony in this new capacity, as well as his continued input on the company’s Board of Director and as Chairman of YY’s Technology Committee. Going forward, our continuing strength -- strengths across all platforms, coupled with our recent initiatives to diversify into new verticals and enhanced user experience will allow us to create opportunities to monetize on our offering and achieve robust financial growth in the quarters and years to come. 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 would like to discuss the development of our gaming platform and growth initiatives in greater detail. For third quarter, we saw gaming revenues grow by over 84% year-over-year to over 154 million. Key among our game initiative is our recently announced licensing agreement with S2 Games and subsequent partnership with Asiasoft, a leading provider of online gaming services in Southeast Asia. The partnership marks our entry into international gaming markets, under this partnership we have licensed the online game Strife from S2 Games for Asia, excluding Japan and South Korea. In addition, we will jointly market, distribute and operate the global version of Strife on an integrated platform with Asiasoft in Thailand, Vietnam, Indonesia, Singapore, Philippines and Malaysia. This global version, which can be played in multiple languages, is slated to begin beta testing this quarter and is scheduled for commercial release in early 2014. For our IVAS revenue, one particular aspect that I would like to highlight was the strong contribution from our emerging area of live game broadcasting. This growing business increased significantly to almost 17 million in the third quarter from only 434,000 just a year ago. This impressive growth represents the strength and the success of our powerful real-time, interactive platform capabilities that can be leveraged for any similar real-time event, as well as our large base of engaged YY users. Now, moving to our quarterly financial highlights. Before I get started, I’d like to clarify that all the financial numbers we are presenting today are in RMB or Renminbi amounts unless otherwise noted. Net revenues for the third quarter 2013 increased by 113% year-over-year to 487 million. This increase was primarily driven by increase in IVAS revenues and to a lesser extent, increase in our company’s online advertising revenues. IVAS revenues increased by 126% year-over-year to 442 million. The overall increase primarily reflected an increase in the number of paying users and increase in ARPU. Let’s look at each our IVAS business lines more specifically. Revenue from YY Music increased by 161% year-over-year to 229 million. This increase primarily has reflected 117% increase in the number of paying users to 771,000, with ARPU of 297 during the third quarter 2013. Revenue from online games increased by 84% year-over-year to 155 million. This increase primarily reflected increase in ARPU of 17% to 347 and a 57% increase in number of paying users to 443,000. Also, the number our online games increased to 111 as of September 30, 2013 from 68 a same time last year. Revenue from others increased by 445 million -- 445% year-over-year to 58 million. Revenue from membership program increased by 77% to 37 million. This increase primarily reflected a 75% increase in the number of members to 705,000 members as of September 30, 2013 from 404,000 a year ago. Revenues from live broadcasting of online games increased significantly to 17 million in the third quarter of 2013 from 434,000 in the corresponding period of 2012. Online advertising revenue increased by 36% year-over-year to 45 million in the third quarter 2013. This increase reflected a 42% increase year-over-year in average revenue per advertisers to approximately 731,000 from 62 advertisers. Cost of revenues increased 249 million. This was primarily attributable to increase in revenue sharing fees and content costs, which increased to 134 million this quarter from 32 million last year. This increase included revenue sharing fees and content costs to performers, channel owners and content providers, including one-time costs related to the Happy Boy collaborations, as well as higher level of user engagement and spending. Revenue sharing fees and content costs consist of music-related, game-related, open platform-related sharing costs, as well as other content production and procurement costs, with music-related sharing costs as predominant component of it. Bandwidth costs increased by 43% year-over-year to 55 million or 11% of the revenue, down from 17% of revenue in the same period last year, as we continue to manage our bandwidth costs through better allocation of bandwidth resources and infrastructure improvement. Gross profit increased by 106% to 239 million. Gross margin was 49% in the third quarter 2013, compared with 51% in the corresponding period of 2012. The decrease in gross margin was mainly attributable to one-time costs related to the Happy Boy Show, partially offset by improved cost efficiency associated with company’s increased scale. Our non-GAAP operating income increased 193% year-over-year to 176 million. Non-GAAP operating margin increased to 36% from 26% 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 increased 267% year-over-year to 129 million from 35 million in the same quarter last year. GAAP net margin increased to 27% from 15% in the same quarter last year. Non-GAAP net income attributable to YY increased by 207% to 171 million, while our non-GAAP net margin expanded to 35% from 24% in the same quarter last year. Diluted net income per ADS increased to RMB2.17 or US$0.35 from RMB0.72 in the same quarter last year. Diluted non-GAAP net income per ADS increased to RMB2.87 or US$0.47 from RMB1.14 in the corresponding period 2012. For the fourth quarter 2013, we currently expect our net revenue to be between RMB510 million to RMB520 million, representing year-over-year growth of approximately 91% to 95%. This concludes our prepared remarks for today. Operator, we are now ready to take some questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Timothy Chan from Morgan Stanley. Please ask question.

[Timothy Chan:]

Hello. Good evening, everyone. Congratulations on a very strong quarter, as well as the solid guidance and thanks for taking my question. My question is actually related to your mobile monetization. Maybe could you talk about the revenue trend here as well as some of the user metrics such as conversion rates and spending level comparing to PC? And are you seeing any impacts to the PC spending as a result of more users are now migrating to mobile? Thank you very much.

[Eric He:]

Tim, thank you very much for the questions. Yes. As we announced that the third quarter, last quarter was the first quarter that we start the mobile monetization. But at this point of time, the mobile monetization remained very small. So we do not have any metrics to announce. We will continue to watch this performance, I think, at the early stage, the mobile monetization was good. And in terms of conversion, in terms of PC spending, we do not see that there is any collaboration at this, I’m sorry, we do not see any cannibalization at this point of time. So PC monetization in Music and in Games and membership are still growing very strong on YY platform.

[Timothy Chan:]

Thank you very much.

[Operator:]

Thank you for your question. Your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.

[Alex Yao:]

Hi. Good morning, Andrew. Good evening, everyone. Thank you every much for taking my questions. My question is on the mobile game publishing sites. You guys mentioned you have recently done some mobile game portal. Can you talk about your strategy on the mobile gaming side? Obviously, we have seen very strong synergy between your work game publishing and the core YY business and how do you leverage the user base on the mobile side? How do you create the synergy between these two activities? Thank you.

[Eric He:]

Yes. Thank you, Alex for the question. I think mobile games, is an area that we think is very important for us, as you all know that. In YY platform, there are a lot of gaming users, so we actually have a very good foundation in base to leverage on our user base. Now, we are actually in a process of establishing of our mobile game team. I think, at this stage, we will be aiming at two directions. One is we will -- actually not giving up development of mobile games by ourselves, because we believe that this is still at early stage of the mobile game development. So there is some opportunities over there. And we do see there’s a chance that the gigantic or blockbuster mobile game is on the way into the future. Secondly is to leverage on our YY resources traffics. We think that we will also build our distribution channel as well. I think, on this particular point, I would like to direct these questions to our CEO, David. David would like to answer these questions as well. Maybe, he will answer in Chinese first then we will translate into English for you.

[David Xueling Li:]

I think that, for mobile games, we would like to actually capitalize on our platform, the power of our YY platform. As you all know that, Mobile YY at this moment is actually growing very nicely in this quarter and we believe it will continue to grow. And also, don’t forget we have very large resources called Duowan.com, which is our game portal. It actually has a very strong traffic on the PC front. And now, we are actually consolidating a lot of apps on Duowan.com into -- actually, the mobile apps. And we believe all those traffics are created by the different apps from Duowan.com will actually contribute to a large, large portion of our future mobile game platform, which is under development right now. We mentioned it before that we will focus on two areas, both. One is mobile game development and also the platform constructions. I think we are in a process of building our mobile game teams in the quarters and years to come.

[Operator:]

Thank you for your question. Your next question comes from the line of Gregory Zhao from Citigroup. Please ask your question.

[Gregory Zhao:]

Hello. Good morning and good evening. Congratulations on the strong quarter. And I have three questions. First, my question about the cooperation with Asiasoft in the Southeast Asia area, S2’s games, shall we expect we will launch further cooperation with Asiasoft to promote our current voice communication software and the video service in that area? And I have hardly two questions.

[Eric He:]

Yeah. I would like to direct these questions to our CEO, David, please. Sorry. We just translated the question again for the CEO. Please, David. Go ahead.

[David Xueling Li:]

We are working, again, with Asiasoft in south Asia and we are about to -- we are planning to promote our YY business in Southeast Asia, but we still have not reached any agreement with Asiasoft yet.

[Gregory Zhao:]

So the cooperation with Hunan TV -- I think we got a very successful cooperation in the past quarter. And so it was mentioned, [management] view upon the user engagement in the coming quarter in Q4 and after we end the cooperation with Hunan TV and any expectation around the churn rates? And shall we expect that the new joiners from the cooperation with Happy Boy will stay on our platform and convert to our paying users? And shall we expect the Q-on-Q sequential paying user increase? Thanks.

[Eric He:]

Yes. As you all know that, in third quarter, our music performance was fantastic. Part of the reason is because that we have the collaboration with Hunan TV. However, I would like to remind you that in second quarter, our music activity or our music business was very good as well. At that time, we did not have Hunan TV -- Satellite TV’s collaborations. So the point I want to make is that we think the power of our YY platform is really the key. So, in third quarter, in fact, all the spaces, all the marketing efforts, resources has been put onto Hunan’s collaboration on Happy Boy Shows. So the point is that, even that we don’t have that contents, we have other contents, which, as we did in the second quarter of this year, we will have very similar type of business level or growth momentum. So, moving forward into the fourth quarter, obviously, we do not have any collaboration with Hunan TV on any content, but we think that the music business will continue to grow very strongly into the quarters and the years to come.

[Gregory Zhao:]

So, in this quarter, the ARPU increase is also contributed by YY’s own platform, right?

[Eric He:]

I don’t quite understand your question, Greg.

[Gregory Zhao:]

I mean the paying users’ ARPU on music. We saw a year-on-year and a Q-on-Q increase. So, I mean the increase is also mainly contributed by the current YY Music users rather than from the close collaboration with Hunan TV, right?

[Eric He:]

As I told you, in third quarter, we have a very good collaboration with Hunan TV. So it will be impossible for us to distinguish between….

[Gregory Zhao:]

Okay. Got it.

[Eric He:]

…the revenue is from Hunan collaboration or from our own music. So there is no way for us to distinguish that. But I just pointed out, in the second quarter, we did not have any collaboration with Hunan TV, where we actually had a very strong business as well. So, moving forward, we will not be dependent upon any contents from any parties. So, I think that’s a point which should be very clear now.

[Gregory Zhao:]

I understood. My last question about the recent progress on education, can management share some colors around the education, the monetization? Thanks.

[Eric He:]

Why don’t I just take this question first and I will let our CEO, David, to answer the question as well. This question for the education, as you know that, we have putting a lot of efforts and resources trying to develop a model which is suitable for our platform. As you know that, we already have roughly 3 million monthly active users who comes to the YY for the education purpose. I think we continue to improve, as we said that our teachers on YY platform have grown very, very nicely, by roughly 28% on a sequential basis. So, I think our education efforts are on the very right tracks. But in terms of monetization, I think our plan at this moment is to wait until next year. David, please?

[David Xueling Li:]

I think, for our education endeavor, the most important thing is we would like to facilitate the teachers and also schools, helping them to do business to make a living on YY platform to make them as online business. Right now, our team actually is developing our products and sharpen our technology. We are actually still at this stage. So, eventually, we would like to see that we can help teachers and schools to convert their offline business model to online business model. We would like to see they can make a lot of money. So we would like to see they can be very successful on YY platform. As to our own monetization, I think it’s not a big consideration at this juncture for our company at this moment.

[Gregory Zhao:]

Thanks, David. Thanks, Eric. Very helpful and insightful.

[Operator:]

Thank you for your question. Your next question comes from the line of Gene Munster from Piper Jaffray. Please ask your question.

[Gene Munster:]

Good evening and my congratulations. Just a follow-up on the education side, Eric. Do you envision that being a separate brand and kind of a separate piece and consumer brand around education, or would that just be under the general YY platform? And then I have a follow-up question.

[David Xueling Li:]

Gene, I think for your questions regarding the brand name of YY applications, at this moment the final decision has not been made yet. As you know that, YY, the brand name has been built over years. In fact, lots of Chinese consumers recognize YY as a great brand name. But we do understand that YY education and YY brand may actually have very different meanings to the investors because YY represents games, music and entertainment. So we are also considering maybe we will use another brand to do our YY education. So, I think the final decision has not been made yet. But this is an important decision and I think we will make that decision as we go along into the future.

[Gene Munster:]

And my follow-up question, just in terms of timing of education revenue, revenue that’s a little bit more measurable that we can be kind of calling out. Is that late 2014, 2015? Any sort of big-picture context of when we should expect that? Thank you.

[Eric He:]

Well, as indicated by our CEO earlier, the paramount task at this moment is to build and to develop a product or technology that can help the schools and teachers. If we can be successful in that, then we will have lots of education users. I think, at this stage, that’s the most important things that we need to focus on. As to the monetization, as to the revenues, it will come into secondary. I think it could come in the second half of 2014 or may be later. So I would say, at this moment, monetization on education is not of the most important things for us to think about.

[Gene Munster:]

Got it. Thank you.

[Operator:]

Thank you for your question. Your next question comes from the line of Yu-Heng Fan, from China Renaissance. Please ask your question.

[Yu-Heng Fan:]

Hi. Good evening. Thanks for taking my question and congrats on strong results. My first question is regarding your margin outlook. You have pretty substantial margin improvement in this quarter. And I wonder if management can comment on the margin outlook for the fourth quarter, both in terms of gross margin and operating margin. Thank you and I have a follow-up.

[Eric He:]

Sure. As I mentioned before to all the investors, I am very confident on our margin picture this year. The reason that I’m very confident is because, as I mentioned, we have actually achieved a lot of operating leverage. As we indicated in our earnings release that our bandwidth costs as a percentage of revenue actually has dropped over years by a couple of percentage points. That’s very, very apparent evidence that we are actually generating very powerful operating leverage. So, moving forward, we think this operating leverage will continue to work. So, in the fourth quarter, we believe our margins should continue to improve on top of the Q3 level. So the company is optimistic on our margins improvement in the quarters to come.

[Yu-Heng Fan:]

Thank you. That’s helpful. My second question is regarding your game broadcasting business. How should we think about the potential of this business? You mentioned that this type of business can be extended to any type of live events. Is there any areas you want to get into for the live broadcasting? Thank you.

[Eric He:]

Okay. We just translated the questions to David. So David please.

[David Xueling Li:]

We think that the YY is a platform of real-time interaction business or activities, not just we can make music business flourish, we can also again, make game broadcasting as a big business. As you all can see that, game broadcasting in this year has been growing very, very fast, very, very strongly. In the past, all the broadcasting business is a business of video websites. The business model of video websites mainly depends on advertising. However, we can -- the power of the YY platform is we can actually convert that advertising-dependent business model into a user participate models. I think that’s the power of YY platform. We believe this capability will enable YY to go into other verticals which will disrupt a lot of different verticals in the future.

[Yu-Heng Fan:]

Thank you. That’s very helpful.

[Operator:]

Thank you for your question. Your next question comes from the line of Alicia Yap from Barclays. Please ask your question.

[Alicia Yap:]

Hi. Good evening. Thanks for taking my questions. Congrats again for a good quarter. My question is on your new mobile games platform. So in addition to developing some of your mobile games, what is your plan to attract game developers to work with you and are you looking more for some exclusive license contracts? And then I also wanted to get management view is that, how should we think about your mobile game platform differentiated with other existing third-party app store or there are some third-party game platforms as well. And also, one of the peers that just reported a couple weeks ago said they plan to launch and market aggressively on the 17173 platform on some of these mobile apps. I just wanted to get your sense like how are we going to spend, are we going to spend aggressively as well on the sales and marketing to drive some of these adoptions of the mobile apps download? And how should we see the competitive environment on this area? Thank you.

[Eric He:]

Okay. Thank you, Alicia. I think we would answer the questions in two parts. I will answer the first part. David will answer the second part. I think I will focus more on the mobile game side. As you know that, we are entering into this mobile era, so -- but we do actually believe that we are still at very early stage. So that’s why we said that we will use three strategies to enter into the market concurrently. One is we will not give up mobile game development. And as to how are we going to do that, I think we will open up for all of the alternatives and options. For example, we will build games by our own teams and we will actually invest into others’ mobile game development teams once we receive that they have the capability to develop good games. On the other hand, as you just mentioned now that we may actually go out there to license some of the mobile games out there to build our distribution platforms. As we recognize that moving to futures in mobile landscapes, there might be many different type of business models. So we think that, at this moment, it’s not very clear what models it’s going to work the best. So we will try actually different options or different routes. So that’s pretty much what we believe on this mobile game development moving into the future. I will let -- I would ask David to answer the second part of the questions.

[David Xueling Li:]

I think I want to sort of bring up a couple of important points. The first point is that we all know that YY has lots of PC users. And this user base is very, very large. And all those YY PC users, they actually would use mobiles. We actually have not leveraged that power to migrate our YY PC users onto mobile yet and if we start to do that, that will become a very important source of user on our mobile applications or Mobile YY at this moment. Secondly, as we emphasized a couple of times that music, education, game broadcasting, those are the businesses that we have -- we are still experiencing large growth. We believe all those businesses are bringing a lot of new users for us. When the new users come in to experience our products in those verticals, it’s likely, if we have corresponded applications on mobile. It’s going to help us to drive all those users to use our mobile applications more easily. So that is going to be another source of our mobile users into the future. Thirdly, I think we want to emphasize the power of our game portal, Duowan.com, which we did not actually emphasize too much in the past. Currently, we have more than 20 million daily, unique visitors on Duowan.com. All those users come to Duowan, actually for one or other applications. For example, it could be on the blogs, it could be just looking for some information or game-related tools or utilities. All those traffics, all those specific usage, can be converted into mobile applications and we are actually constructing that as well. So we think that, once all those applications being constructed into the mobile apps, that is going to generate lots of usage on our mobile applications into the future. So in third quarter, as you all know that we started our monetization on mobile fronts. We think, although that we have not disclosed any metrics but we think that the endeavor was very encouraging because the business model that we have on the mobile, obviously is going to be virtual item based. And the virtual item based model actually is now being hampered by the size of the screen. So we are confident that as we move along, our mobile revenue should continue to grow and ramp up in the quarters and years to come.

[Alicia Yap:]

Okay. Great. Thank you so much.

[Operator:]

Thank you for your question. Your next question comes from the line of Vivian Hao from Deutsche Bank. Please ask your question.

[Vivian Hao:]

Hi, thank you for taking my questions. Congratulations on a great quarter. We realized -- it looks like our operating expense not only declined as a percentage of revenue and also in absolute terms, it seems to be lower quarter-over-quarter. Is there any specific reason behind this or how we should read into the fourth quarter on operating expense? And also in terms of the revenue, sorry -- the content-sharing cost, I mean, stripping out that 30 million that should fall into this quarter. It seems like it is still about 47% -- 46% of the music revenue. So what is the sustainable music sharing percentage we should think of for the coming years? Yes, these two questions first. Thank you.

[Eric He:]

Thank you for the questions, Vivian. For the first question, it’s regarding that our operating expense is actually declining in terms of a percentage of the revenue and also on the Q-over-Q sequential basis, it’s actually decreased. Yes, we actually achieved this by two ways, one is because of our operating leverage. As I mentioned that, as we grow bigger, the percentage of this operation expense to this revenue will get smaller. Secondly, on the sequential decline, is because that when we actually have all this expense, we will incorporate a lot of accounting estimations. So, in the third quarter, we have some changes in accounting estimations, which resulted in smaller numbers of operating expenses. For your second question, is our sharing cost and content cost -- revenue-sharing costs and content costs. I think the way that you calculate the sharing costs for our music revenue is incorrect. The reason it’s incorrect is because if you look very carefully, this line item is called revenue-sharing costs and content costs. Yes, you took out the content costs for the collaboration of Hunan Satellite TV but if you compare this cost with last year, remember, last year, in this line items, it was only music-sharing costs versus music revenue. But in this year, as I just said it, that the sharing cost includes not only the music-sharing costs, also includes open platform games and others. So that portion -- if you incorporate that, that portion actually make the sharing costs a little bit higher. That’s number one reason. Number-two reason is the deferred revenue. As I mentioned, that part of the music revenue is being deferred into the future periods because of the U.S. GAAP requirements. So because there are two reasons, if you use this percentage to calculate sharing costs, it could create incorrect percentage. I can assure you at this moment that our sharing costs for musicians at this moment on a cash basis is still unchanged roughly around 35% to 40% at this moment.

[Vivian Hao:]

Okay. Great. One last housekeeping question, just on the P&L, there’s other income of 16.8 million for this quarter. Is that all from government grants or any other components there?

[Eric He:]

Yes, that is one-time government grant in the third quarter. Correct.

[Vivian Hao:]

Okay. Great. Thank you very much.

[Operator:]

Thank you for question. Your next question comes from the line of Evan Zhou from Credit Suisse.

[Evan Zhou:]

Hi. Good evening, David, Eric. Thanks for taking my question. My question is a quick follow-up on the user acquisition strategy that David just mentioned briefly. It seems to me that most of our mobile traffic right now are -- mainly comes from these resources that David just mentioned, pretty natural, organic traffic sources. So wondering -- I just want to pick you guys’ thoughts on how do you see our user acquisition -- mobile user acquisition spend or kind of strategy going forward down the road, maybe in the next one or two years because I think some of the peers are spending pretty heavily in domestic and also international markets to increase their user base. So I’m wondering like how do we mainly see the market going and how do we plan for the -- in the long term to acquire more -- increase our user base? Thanks.

[Eric He:]

We’re translating the question to David. Just hold on a second.

[David Xueling Li:]

Since eight years ago, when the company -- we established the company, we still use the original model is that we want to solve the problems of the users. If we solve the users’ problems, word of mouth will actually market or distribute our products. So we believe this model very much. So we would continue to use this as our growing strategy moving into futures.

[Evan Zhou:]

Thank you. Best of luck for fourth quarter.

[Operator:]

Thank you for question. I would now like to hand the conference back to Mr. Eric He. Please continue.

[Eric He:]

Thank you very much. Now I would like to conclude today’s conference call. Thank you very much.

[Operator:]

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