Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Renren (NYSE:RENN)

Q1 2013 Earnings Call

May 13, 2013 9:00 pm ET

Executives

Sam Lawn - Investor Relations Director

Joseph Chen - Founder, Chairman and Chief Executive Officer

Jian Liu - Chief Operating Officer and Director

Hui Huang - Chief Financial Officer and Principal Accounting Officer

Analysts

Timothy Chan - Morgan Stanley, Research Division

Alicia Yap - Barclays Capital, Research Division

Cynthia Jinhong Meng - Jefferies & Company, Inc., Research Division

Jiong Shao - Macquarie Research

Eddie Leung - BofA Merrill Lynch, Research Division

Andy Yeung - Oppenheimer & Co. Inc., Research Division

Echo Yinghui He - Maxim Group LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2013 Renren Inc. Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 14th of May, 2013. I would now like to hand the conference over to your first speaker today, Mr. Sam Lawn. Thank you. Please go ahead.

Sam Lawn

Thank you, and welcome to our First Quarter 2013 Earnings Conference Call. Joining me today on the call are Joe Chen, Chairman and Chief Executive Officer; James Liu, Chief Operating Officer; and Hui Huang, Chief Financial Officer. For today's agenda, management will discuss highlights for the first quarter of 2013. This will be followed by a question-and-answer session.

Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars.

I will now turn the call over to our Chairman and CEO, Joe Chen.

Joseph Chen

Thank you, Sam. Good morning, and good evening, everyone. In the first quarter, we got off to a good start executing our plans for 2013. Revenues of $46.6 million came in just above our top line guidance, with gaming once again a key growth driver. Our renren.com SNS platform has grown to be activated user base of 184 million, up 19% from 154 million a year ago. In March, our monthly unique login users reached 57 million, an increase of 41% year-over-year. Our user metrics and mobile traffic continue to grow healthily despite a fiercely competitive environment, reflecting the strong social graph of our real name user base and platform. As always, we look for sustainable growth in our user base.

Let me first share with you some of my observations on our rapidly evolving industry. As we see a massive transition to mobile, it is becoming increasingly transparent how user habits are progressing along with it. On mobile, clearly communication comes first. Communication has always been the main and the most native service for mobile handset, even before the smartphone revolution, and it is now evolving into different forms of text, voice and even video. While for PC, social networking was the game-changing service, which revolutionized how users shared and distributed content. Mobile has made our users more communication oriented, while on PC, it tended to remain more social and content sharing focused.

We currently offer services for both mediums with the one growing much faster than the other. This means Renren mobile will need to trend more toward a social messaging service with the social sharing elements, while where Renren PC continuously engage as a social network focusing on content delivery, sharing and connecting people. Our upcoming mobile apps upgrades will be more communication focused, and it will continue to expand social networking features on our PC platform. Our goal will be to provide users the best user experience possible based on a device that access our services front. The next few quarters we aim to make some strong advances in these lines, so I'd like to touch upon the key focuses for each of them.

Turning first to gaming. We're dedicated to replicating our early success in IVAS space mobile gaming under the Android market. The next wave of growth for mobile and cross-platform games lies in this untapped market. We're continuing discussions with all major platforms to ditch [ph] real games. We're also fine-tuning our games with different Android-based devices. This preparation took a bit more time than we had originally anticipated given a much larger and fragmented Android market in China. As a result, the regional pipeline scheduled for the first half of the year has been temporarily delayed. That said, we do expect to ramp up quickly later this year once we have fully tested and mapped out our Android landscape. While complicated and highly fragmented, Android offers significant potential for gaming business. We have a solid number of existing and new games in the pipeline that will place our Android and a way to process and carefully developing a detailed distribution strategy into this market. Among various gaming initiatives, I would say establishing a market leadership in the Android market is our top gaming priority this year.

In social commerce, Nuomi remains the leading player in the sector with the presence in 59 cities. I mentioned to you last quarter that we'll be faced with choice to either reach profitability quickly or keep on investing to gain more market share. What we see right now is the opportunity to secure position as one of the true final winners in group buying with mobile commerce adding a new dimension and opportunity for growth. Competition among the remaining key players has heat up, and we will invest more aggressively and expand it into new cities in the next few quarters. In the short term, we may incur more losses, but we are positive of our long-term opportunity in group buying.

Finally, advertising remains challenging due to increasing competition, and it continually shifts over user time to mobile. As expected, Chinese New Year added some seasonality during the first quarter. Although we grew slightly year-over-year, we saw signs of slower growth in certain advertising verticals due to one-off events and the Chinese market condition. With this, however, I also see some early positive signs in particular vertical categories, but I would say we're still a few months away from true visibility in the full year's advertising outlook. During the quarter, we also continue to work on different forms and mobile advertising formats and expect to start testing the market in the second half of the year. However, I suspect material monetization for mobile advertising in China will still be some time away and way behind the development pace of mature markets.

Overall, mobile continues to be our primary focus, and we're constantly looking to fairly improve the efficiency of our mobile investments. Over the past few quarters, we have identified our key mobile initiatives and adjusting our resource allocation accordingly. As a result, we're shifting more resources to projects that we believe have the best chance of success such as Renren SNS mobile, Nuomi mobile and the gaming mobile initiatives, which already has established user base and brand on PC Internet and the mobile strategy is really adaptation gain.

On the other hand, there are a few very large but very rare brand-new mobile earning opportunities that we're currently pursuing. For example, our Jingwei business card mobile app, which is a pure mobile app with no PC counterparts and a brand-new brand and services, intrinsic play and with bigger, long-term growth potential, but in the meantime, higher risks in terms of investments. In this area, most of our competitors are startups. We think early and more entrepreneurial, and the nimble approach will prevail. This means smaller, nimbler teams, more definitive milestones and more entrepreneurial payoff structures for employees. All these, we're putting into place. We believe the shift of resources to the more concentrated on key initiatives of existing assets and brands plus creating a more startup-like program for new, fewer mobile initiatives will be overall a more efficient approach in maximizing returns on mobile investments.

In conclusion, the entire mobile Internet industry is in the middle of evolutionary process and the pace in change in any part of the world is fast and fierce. Large opportunities are being discovered, but often in a short time frame that typically do not repeat. While company's mobile initiatives will be tested in a much shorter and a disciplined timeframe, compared to the PC Internet days, all of us, Renren and our competitors alike, are in unchartered waters. We understand that there's industry-wide transition, and our long-term focus of the business will require patience. By the way, we're off to a good start in the year and our priorities are very clear. 2013 will be a critical year for us, and we're carefully making heavy investments in areas we believe will reap future rewards. We remain focused on our long-term strategies and look forward to sharing and reporting further details on our progress.

This concludes my remarks. Now I would like to pass the floor to James for operational review.

Jian Liu

Thank you, Joe. Let me begin first with an update on details with our mobile metrics. In the first quarter, mobile penetration of our daily unique login users maintained a steady average of 65%. We had a record high mobile time penetration of 74% as compared to 67% in the previous quarter. On average, our users spent around 8 hours on Renren, a sign of continued healthy user engagement, especially given the competitive environment.

On the mobile initiative fronts, we're planning to launch Renren mobile updates more frequently so that we can tailor our products more closely to the evolving needs of our users. As Joe already mentioned, more communication-oriented features will be introduced soon, and we hope to discuss this in more detail after the new versions are released.

Optimization also continues to be a focus to ensure that our users have the best experience. An example is that we recently upgraded the upload and display feature of multiple pictures simultaneously, making it easier to share and view pictures. Sometimes it is the continuous optimization of services added up that makes a large impact.

One of our other mobile initiatives this year is to better leverage our existing technologies and resources. With that, we can go deeper to better serve certain subsets of our user base. A case in point is Jingwei. A Jingwei mobile app is evolving from a professional business card reader into a social and business networking application for our white-collar workers. While still relatively early, we're very excited about the potential services and value we can provide to white-collar professionals.

Let me now discuss our gaming business. Gaming performed well in the first quarter, as expected. At the end of the quarter, we had 16 in-house titles and 36 third-party games in operation. Our top 5 games are now all in-house developed. Some of our older games have reached its mature life cycle stage, but newer games are beginning to ramp up nicely. We're hoping to launch a few of our delayed games soon, but priority remains in quality over quantity. At the same time, we will also continue to look for more top-quality third-party games to add to our platform while leveraging our cross-platform capability.

In the meantime, during the past 2 quarters, we have started to gain traction in our mobile gaming advertising exchange network called Ader. This development has been under testing for some time. The results in recent months have been very encouraging. We now not only fulfill our own mobile gaming promotional needs through the exchange network but also started selling to third-party advertisers with good results. Our goal is to grow the platform into one of the largest mobile gaming advertising exchange in China as both mobile gaming content and promotional channels are critically important key elements to this business.

Turning now to Nuomi, our group-buying business. Despite the Chinese New Year seasonality, total gross merchandise value, or GMV, sales increased over 100% year-over-year and user metrics continue to be solid. The Nuomi brand remains strong as we have 3.1 million active paying users with an all-time high repeat ratio of 54%. Our repeat ratio has run sequentially for the past 5 quarters, reflecting the loyalty and the stickiness of our users. We're also excited to see the mobile purchases now represent nearly 30% of total sales, and we'll continue to build on this momentum. Commissioning rates, however, remain similar to the previous quarter, but we continue to believe this will improve once the sector has further consolidated. That is why, as Joe already mentioned, we are moving decisively to capture more market share.

Finally, a brief update on 56.com. We had a nice operational start in the first quarter with user metrics such as daily visitors and video viewership continuing to grow healthily. And while our focus remains on UGC content, we agreed on some revenue share professional content deals to start leveraging and building upon our existing traffic. Meanwhile, we have also implemented a more efficient sales structure in place. All signs point to the direction of better monetization in the second half of this year.

That concludes my operational update. Let me now turn over Hui for the financial review.

Hui Huang

Thank you, James. Hello, everyone. Let me provide you the financial highlights for the first quarter. For our quarterly financial reporting starting in the first quarter of 2013, Nuomi's revenue will be reported separately to better reflect management perspectives on our business. Our total net revenues for the first quarter of 2013 were $46.6 million, representing a 45% increase year-over-year.

Now let me walk you through the major revenue components and the trends. First, Renren net revenues, which include games, other IVAS and advertising revenues, were $41.5 million representing a 40% increase year-over-year. Online game revenues were $26.7 million for the first quarter of 2013, a 53% increase from the same period of last year. The increase in online gaming revenues during the quarter was again due to our in-house developed cross-platform games. Other IVAS revenues were $5 million for the first quarter of 2013, an 80% increase year-over-year. Online advertising revenues were $9.8 million for the first quarter of 2013, representing an increase of 5% from the same period of 2012.

Our top 5 verticals in the first quarter for our advertising business starting from highest rank were FMCG, or fast-moving consumer goods, IT, auto and the financial services together, apparels and then daily care. Second, Nuomi net revenues were $5.1 million, representing a 102% increase year-over-year. Nuomi's active paying users were 3.1 million for the first quarter of 2013 compared to 1.8 million from the same period last year, a 69% increase.

Now gross profit. Gross profit in the first quarter was $30 million, a 53% increase year-over-year. As a percentage of the total net revenues, gross margin increased to 64% in the first quarter compared to 61% in the same period of last year, primarily due to gross margin improvements from gaming, as well as the higher revenue contribution from Nuomi.

Operating expenses in the first quarter were $57.5 million, a 43% increase year-over-year. Operating expenses in the first quarter of 2013 included $11.8 million expenses incurred on Nuomi. The increase in total operating expenses was mostly due to R&D functions, particularly relating to mobile investments, as well as the sales and the marketing expenses relating to the promotion of our games.

Next, loss from operations in the first quarter was $27.5 million compared to a loss of $20.6 million in the same period of last year. The increase in losses from operations were primarily due to 3 factors: first, our significant investment in R&D, particularly in mobile-related initiatives, where monetization lags behind investment; second, losses we're generating in our Nuomi business; and thirdly, our investment in 56.com to further improve its infrastructure and user experience.

Our net loss in the first quarter was $3.1 million compared to a net loss of $13.6 million in the same period of last year. The net loss in the first quarter included a onetime gain of $14.7 million from a sale of our short-term investments. Nuomi contributed $6.9 million loss in the first quarter compared to $8.2 million loss in the same period of last year. Excluding the result of operations attributable to Nuomi in both quarters, net income in the first quarter of 2013 would be $3.8 million compared to a net loss of $5.5 million from the same period of last year.

Adjusted net income, a non-GAAP financial measure, was $0.5 million for the first quarter of 2013 compared to $11.3 million adjusted net loss for the first quarter of 2012. Excluding operations from Nuomi in both quarters, we would have adjusted net income of $7.4 million in the first quarter of 2013 compared to adjusted net loss of $3.1 million during the same period in 2012. Adjusted net income or loss is defined as income or loss from continuing operations excluding noncash share-based compensation expenses, amortization of intangible assets and impairment of intangible assets.

As of March 31, 2013, the company had cash, cash equivalents and short-term investments of approximately $835 million.

Now let me provide you a quick update on our share buyback program. During the first quarter of 2013, we repurchased approximately 1.3 million ADS shares.

Finally, let me provide you our top line guidance for the second quarter of 2013. For the second quarter, we currently expect to generate revenues between $55 million to $57 million, representing 23% to 27% year-over-year growth. This forecast reflects our current and preliminary view, which is subject to change.

That concludes our prepared remarks. Now we would like to open the call for questions. Operator, please go ahead. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Timothy Chan of Morgan Stanley.

Timothy Chan - Morgan Stanley, Research Division

My question is on the competitive landscape for mobile. We understand that Renren mobile is getting bigger in terms of profits and importance. On the other hand, services like WeChat, which is also real name to some degree is, offering features like Friend Circle, and we know that Friend Circle is very similar to Renren, for example, on photo sharing and status update. And may I ask, how do you see the competition going?

Joseph Chen

Tim, this is Joe. I think that we have hinted and we have discussed the competitive landscape in the past few quarters in the conference call, and we believe that Tencent, WeChat remain one of the biggest competitor, although our competitors, main competitors, keep changing every year. A few years ago, was Kaixin001, and until 1.5 years ago, it was Weibo, and past 1.5 years was WeChat. So the bad news is that WeChat is backed by one of the biggest market cap Internet company in China with a lot of experience on messaging. And it's very core to their core business that they've been doing for the past 10 years. So that's the home court advantage. Well, I think the good -- the only slight good thing is that we believe this is probably one of the last most ferocious competitors. So if we survive this one, we are probably going to do well afterwards. But going back to the commenting on the features, we notice the Friend Circle feature, as soon as they launched it and we will be observing their performance, obviously, it's gaining a lot of share in the photo sharing market, particularly among the white-collar audiences. But there's a core difference between the social networking service versus mobile messaging service versus Twitter-like open network. I think in terms of access control and the degree of openness in terms of sharing, social networking actually sits between a Twitter network, which is widely open versus -- and also on outer spectrum, you have a very private network, which is mobile messaging, such as WeChat, such as online [ph]. So I think that the hybrid product DNA of social networking has both advantage, especially during the PC days, where accountant wants to find place to travel and the photo wants to be shared by nature. So that kind of DNA worked really well. But on mobile, as I said in my remarks, that we think that communication has been native application even before smartphones and texting and calling was pretty much what everybody do and spend most of the time on mobile handset. So people continue to do that on smartphones. So we think that's why we -- I think I probably -- we coined the word of social messaging, which is really, I think, the opportunity and history is calling for a further innovation in the product DNA for the social networks to better adapt to the mobile-centric world. So that's -- we have some thinking about it. We will report the progress once we have it.

Timothy Chan - Morgan Stanley, Research Division

My second question is also related to mobile. As stated in your press release, I think apart from gaming and advertising, you touched upon other potential monetization models for mobile. Maybe could you briefly share with us what it will be?

Joseph Chen

I think you probably referred to our mobile advertising network, right?

Timothy Chan - Morgan Stanley, Research Division

Yes. I mean, from the press release, and there's a paragraph talking about mobile gaming and mobile advertising. And a little bit there, you touched upon other potential monetization models for mobile as well. I'm just wondering if it relates to services like OTO or some kind of e-commerce initiative on mobile.

Hui Huang

Yes, Jim, this is Hui. I think that in the press release, I think we referred to potential mobile monetization in the long term. As you know, in addition to our core mobile initiatives, especially the Jingwei mobile, Nuomi mobile, as well as the gaming mobile, we have several new pure mobile, new initiatives such as the Jingwei, such as the advertising exchange network going forward [ph]. Both of them are still in the relatively early stage, but we are fairly encouraged by the progress of those initiatives. And we are already starting to based on the potential monetization model of those new mobile initiatives. But I think it is still too early to report a more detailed progress. But hopefully, in the coming quarters, once the monetization model for those potential new initiatives are more crystallized, we'll be more than happy to share those with you.

Operator

Your next question comes from the line of Alicia Yap of Barclays.

Alicia Yap - Barclays Capital, Research Division

My first question is regarding your second quarter guidance. Will you be able to give out some details on the breakdown? For example, what should we be expecting for the online advertising and also the gaming? And I think for looking at the gaming specifically, last year was a little bit high based, and given that this year we have seen a number of kind of all these third-party independent mobile game developers come into the picture, so I wonder how you look at the overall mobile games competitive landscape.

Hui Huang

Alicia, this is Hui. I think in terms of our guidance, well, first of all, I think it reflects our current visibility, all this very dynamic factors and the risks and rewards in those sectors we operate. Particularly as you mentioned, the new market within our gaming and the Nuomi business and advertising are very dynamic. For online advertising, given a majority of our traffic is shifted to mobile, I think the challenge on monetization will remain for a while. But that said, we do expect that we have slight year-over-year growth in our online business in the second quarter. And in terms of gaming, again, you very correctly point out that compared to last year, we had a high base already. And also as mentioned in Joe's prepared remarks, we see the highest priority for this year is to explore the Android market, which is very fragmented and very complicated. So the preparation took a bit longer than we had originally anticipated. But we want to make sure that we are fully prepared to penetrate into this market. And that's because the competition is heating up, so we want to make sure that we take the right approach and have done all of our homework. As a result of all this, the launch, the full launch of our Android games are somewhat a bit of delayed compared to our original expectation at the beginning of the year. And as such, it has a certain impact on the second quarter mobile gaming revenues as well. So that is our current thoughts on these 2 specific business.

Alicia Yap - Barclays Capital, Research Division

Okay. Can I just follow up on that? And have you seen any increase or change of the competitive landscape on the mobile games?

Jian Liu

Alicia, thanks for the question. This is James. Yes. To answer your question, the Android market is seeing a tremendous growth in this year as Joe said earlier, right? Android will be one of the focuses for us this year. We have this opportunity. A lot of our competitors have this opportunity as well, but we believe we have some of the early-mover advantages by being a cross-platform provider in those very, very early days. And we will continue to leverage on those capabilities to provide both in-house developed games as well as third-party licensed games. So in the second half of this year, as we said earlier, we'll step up our licensing program and efforts and provide more games, especially for the Android market. The other thing is distribution for games is critically important, right? So we said earlier that one of the initiatives in the department of gaming distribution is the Ader ad network. It's a dedicated ad network to the gaming market. It's actually one of the top one for the iOS platform. We're bringing this advantage on to the Android market as well. And these advantages as we have seen, despite the heightened competitive landscape in this particular space, will continue to give us an edge over competition.

Joseph Chen

Alicia, this is Joe. Let me quickly add on what James has said. I think that a good way to look into the maturation development of mobile gaming industry is probably looking at where is similar market, which is a web gaming market, the -- how long does it take for the market to -- from going -- we're in an early stage to maturation. It took a good 45 years for that industry to mature. And now, the development resources, as well as talents now moving to mobile. Again, because the number of devices and monetization potential and reach in the customers are much bigger in mobile, we think that this actually -- the maturation of the mobile gaming will probably take even longer time. So we're really at early stage. I think we're at year 1 of this big wave. I think the ocean will become more red every year. And the sixth [ph] year from today, it's going to become violet. But now, it's still blue. I think that it remain slightly blue for one more year and then it's turning red. So I think that it's -- I think it's really about execution and -- it's execution, execution, execution.

Alicia Yap - Barclays Capital, Research Division

I see. Second question also on mobile but on Nuomi. Given that I think coupon of this O2O businesses is actually conveniently available on the smartphone, so how are we positioned on this? And then are we looking more for -- going to promote the Nuomi apps separately? Or are we going to more integrate into the Renren platform?

Joseph Chen

This is Joe. We're already starting to distributing independent Nuomi apps on both iOS and Android platforms. And we think that in terms of return on marketing spending, mobile actually represents one of the best channel nowadays, partially because the PC Internet traffic in total is probably reaching a peak in China or close to a peak. And the unit costs for those traffic were expensive. So mobile is cheap. So no brainer, mobile is going to be a major initiative for Nuomi going forward in terms of distribution. And also in terms of another, something unrelated, but I think related as well, which is that our initiative to expand into more cities. We think that with Nuomi consolidating our leadership in a lot of big cities, I think that some of the smaller one cities represents very good growth opportunity for us to extend on brand name recognition, as well as distribution strategies as well. So if we compare Nuomi's cities penetration, we're very -- we remain 50 plus for a long time, and we expect to expand the number of cities that we do business in the next couple of quarters.

Alicia Yap - Barclays Capital, Research Division

I see. Just lastly, on housekeeping question. What was this kind of like a big onetime $15 million short-term gain on this investment [indiscernible] security?

Hui Huang

Alicia, this was an investment we made last year in the a U.S.-listed Chinese company that we have done business with. And so we were actually one of their IPO investor, not for a big amount. And since their share has appreciated significantly, and we exited this investment during the first quarter and it realized close to $15 million onetime gain.

Operator

Your next question comes from the line of Cynthia Meng of Jefferies.

Cynthia Jinhong Meng - Jefferies & Company, Inc., Research Division

I have two questions. Number one is can you talk more about TongXueShuo, the new messaging application you've recently launched? And what is the strategy there? And how does it differentiate itself from the competing applications like WeChat and LINE in China? The second question is related to the Tina [ph] Alibaba deal. Can management share any thoughts on the recent Tina [ph] Alibaba deal? And how do you think it will help shape the mobile monetization landscape of the overall market? And how will Renren be positioned within this context?

Joseph Chen

Cynthia, this is Joe. Referring to your first question, [Chinese], just by the name, it's a college mobile-only messaging map -- messaging app, and we are currently testing in a few colleges. We haven't rolled it out nationwide. We have very small teams supporting it, developing it. So it will be one of the interesting -- more entrepreneurial experiments that we're doing. So most of the mobile development is on Renren Main [ph] mobile app, which has tremendous amount of usage already, particularly among the youngsters. So as I said earlier, the challenge is how to adapt to the messaging-centric mobile world. So we -- I call it the world of social messaging service, which is, I think, that's our main businesses going forward. And for all SNS players, I think that's going to be the business they're going to end up doing. On your second question, we typically don't make comments to our competitors because previously, whatever I do, I get blamed. So I'm going to wise up this time. But generally speaking, I think that you will be seeing market consolidations. I think what you're really saying is that the Chinese company are more willing to do big deals now than before. I think that -- I think partially because the intensified competition, compare with 5 years ago when there were no big deals done, nowadays, competition is very, very intense, right? You have the 3Q world. And now, you have the 3B world. I mean, all these worlds are happening, creating anxieties and casualties in the space so you won't be surprised to find more deals like that. And I think it's good for both parties. Typically, people do deals for a good reason.

Operator

Your next question comes from the line of Jiong Shao of Macquarie.

Jiong Shao - Macquarie Research

I have 2 groups of questions. First group is about your gaming business as well. So for your web game business, could you talk about the pros and the cons for having both a platform and being a developer yourself? And then on the mobile games side, could you talk about how many mobile games do you have? How many of them already have the PC version? And for the new mobile games you are launching, are they just purely just for mobile? There's no PC counterpart to those games.

Jian Liu

Jiong, this is James. Thanks for your questions. One -- the first, the question is gaming -- running a gaming platform versus being a gaming operator at the same time, right? So clearly, the synergies and the advantages are pretty clear, right? As a platform, Renren offered the very first opportunities for our in-house games as well as third-party games to grow out this fertile ground. Actually, one of our very first web games, if you remember back many years ago, were launched on to the Renren platform. Some of them became big hits from day 1. So by leveraging on a massive user base from our existing platform, clearly, provides a very good launching pad for our games. Having said that, as games move increasingly to mobile, Renren continues to provide a lot of supportive roles to the games -- to the mobile games, but to a lesser extent. In the current time, we are in the process of planning tighter integrations between the Renren platform on the mobile side with our mobile games. To your second question, mobile games versus PC games. Today, for in-house games, I think we have 16 games. That's developed in-house that we are operating. We have about 36 games that are licensed from third parties that we operate. But all of our in-house games, they have both a mobile version and a PC version. So in the spirit of true cross-platform capabilities, whenever we develop any games today and into the future, we will have both mobile and PC versions. And in terms of what more metrics we can share with you guys is on mobile and PC, we see 50-50% split in terms of the time that users spend on the same game.

Jiong Shao - Macquarie Research

So you alluded to earlier about the tighter integration between your mobile platform and your mobile games. Did you mean, eventually, once the options is for you to run the -- your mobile SNS platform as a sort of a mobile gaming platform as well? And also will you be able to share with us the DAUs for your mobile app?

Jian Liu

Yes. So Jiong, to your question, in the -- we are -- Renren, if you remember from our remarks, right? We. Will continue to focus on -- for the mobile platform, we'll focus on more becoming more of a social messaging platform, right, with emphasis on communication. That is and will continue to be the emphasis for our mobile service for Renren into the future. Having said that, we will -- we have observed some of the mobile leading players like Kakao and the LINE, as well as WeChat, right? What they have done, and we are coming up with our support for gaming distributions. The version -- the new versions is being developed as we speak. We're planning to launch it within the next quarter or 2, and you will -- we will report back to you more updates once we have launched that application. But Renren, as a platform, will become one of the gaming distribution channels for our games going forward.

Jiong Shao - Macquarie Research

That sounds perfect. That sounds great. Now the -- earlier I asked about whether or not you would do just mobile only games. I'm sorry if I missed that, I missed the answer. And when -- how many of these games you're planning to do in the next 6 to 12 months?

Hui Huang

Shao Jiong, yes, I think for most of our in-house developed games, they are cross platforms, including those PC and mobile versions. But we also have a pure mobile-only games that are developed or in the pipeline. And overall, the pace of the launch of the in-house games will be 1 or 2 new titles every quarter.

Jiong Shao - Macquarie Research

Okay. As of -- I know in the past you were not be able to -- you have not provided the breakdown in terms of the revenues between the mobile and PC game. I don't know if you're in a better position now to share that with us?

Hui Huang

At this moment, majority -- different majority of the games that we monetize are cross-platform. And as we explained in the past, for those, it's technically difficult to break exactly how much revenue is it from mobile, how much is it from PC, given that the payment feature for both mediums. And going forward, once we have the launch of mobile-only games, then we can provide specific revenue size from those games, of course.

Jiong Shao - Macquarie Research

Okay. Hui, that's a very -- that was a very long first question. My second question is on your video business. Given all the moving parts and all the mergers and acquisitions in the space, clearly, the sector is consolidating. And it's been -- I think it's been 1.5 years since you bought 56.com. I was wondering, could you sort of elaborate a bit on how you view 56.com positioning longer term in the video space as few of your peers have sort of already created either niche or their positioning in the sector already? Where will 56.com come in longer term?

Jian Liu

Jiong, this is James. Thanks for the question. 56 -- we acquired 56 1.5 years ago. We have seen a lot of consolidations in the industry. What we have observed is the consolidation tends to happen amongst those players that focus on the one particular area, which is the bigger movies, the longer formats, longer form of TV series. It's the license, the content players that are consolidating. We have noticed -- for instance, recently Qi [ph] bought PPS. We heard there are more deals coming in, right? For this part of the video business industry, scale really matters. Because people have to spend tremendous amount of money buying content, and they're much better off served with a much bigger audience and pooling the content purchase cost as well as bandwidth and facing the same customer base. So scale really matters. 56, from day 1 when we bought it, up here to this point, we see ourselves playing a different game, which is very much tied into the social scenario, which is the user-generated video content, right? 56 from day 1, when it was established, it's known as the home of UGC-generated content. It is still today one of the very, very few pure UGC video services in the market. And unlike a lot of the Qis [ph] and the PPS, right, focusing on longer format of movies and videos, a lot of our content is actually distributed in social, which is a perfect match with Renren. We will continue to focus on what 56 is really best at, which is UGC, and we're happy to report that since our acquisition from a 1.5 years ago, 56 has seen very healthy growth, both in terms of daily video viewership, which is the most important metric, and unique visitors. So video viewership went up almost double from the day when we bought it. So it's been growing very nicely.

Jiong Shao - Macquarie Research

How much is the revenue from 56.com?

Hui Huang

It's roughly $4 to $5 million in Q1.

Operator

Your next question comes from the line of Eddie Leung of Merrill Lynch.

Eddie Leung - BofA Merrill Lynch, Research Division

I have 2 questions. The first one is also a follow-up question on mobile games. Could you share your thought on having a platform with social elements versus some of the, at the moment, more popular mobile app stores reflect thousands of apps and games and also your pretty good momentum in terms of revenues. So do you think social elements will give you an advantage in the long term? If so, what could be the reasons? So that is the first question. And the second is a housekeeping question Could you share the number of Headcounts with us? And then what could be the plan for the rest of the year?

Jian Liu

Eddie, thanks for the question. This is James. So to your first question, the platform with social elements, right? What's the difference and advantage compared with the other app stores? Today, what we have seen is, on the Android market, there's like over a few dozen -- almost like 20, 30 different app stores, right? Renren social platform, it's primarily a communication platform. But we do have the advantage of having a huge user base. And that, we believe -- we have some of the social distribution channels like if somebody is playing this game, and if he's willing to share that game-playing experience with his fellow -- other users, he can have the choice to do that, right? That continues to be one of our advantages but this is one of our gaming distribution channels. It's not the exclusive one. Second question is headcount. Headcount for gaming or headcount for the entire company?

Eddie Leung - BofA Merrill Lynch, Research Division

Headcount for the...

Hui Huang

For the year -- okay, maybe I can give our overall and then a few quick comments by different business in terms of headcount. As of the end of the first quarter, the company had a total headcount of approximately 4,700. And as of last week, which is probably May 9 or May 10, that number grew to 4,900. And for different business, we have different headcount plans. But the fastest-growing areas are our gaming business. We'll continue to hire good talents for game development, as well as Nuomi. As both Joe and James mentioned, we are ready to expand into new cities and further grab market share. So as a result of that plan, we will increase sales force for Nuomi. And then for Renren, as Joe also commented on early on, we think we have a solid team. We are reallocating resources into mobile. So we see some slight headcount increase, not a whole lot. So as a result of this, the total headcount will continue to grow for the rest of the year. But overall, at a less pace compared to last year's.

Joseph Chen

Yes. Eddie, this is Joe. Let me quickly add on James' point, addressing your question about the skills of social, how it applies to gaming. Two things, one, very quickly, is that news feed has been the main distribution channel for gaming. So when your friend plays certain game, especially a social game, then it shows up on news feed and then you see that you want to play with him and you click it. That's one of the reasons why FarmVille and also the equivalent games this way on social networks. But most of the games that we develop are actually much deeper, much more stickier RPG-type games and therefore, so it's not social game. The news feed doesn't show up as frequently as social games. So that disadvantage actually come down. But I do notice that -- I just realized that for a company like us with many years of community experience, online community experience -- we started doing community back in 2004, so being 9 years today. And a lot of the secret recipe of developing long-lasting, high-ARPU games is to build the vibrant online community, one example being NetEase. If you look at their first game that launched almost 10 years ago, it's still doing well. And why is that? If you look deeper, they build a community. So I think the secret sauce is really -- as a gaming developer is to have that community DNA. I think our team has that.

Operator

Your next question comes from the line of Andy Yeung of Oppenheimer.

Andy Yeung - Oppenheimer & Co. Inc., Research Division

My first question is actually about your expense level. When we look at your operating expenses as a percentage of revenues, you have improved over the past 4 quarters. And I think the first quarter for the first time in 2 years, your expense growth is actually is lower than your revenue growth. So just wondering, should we expect the trend to continue? Or how should we look at your expense level going forward?

Hui Huang

Andy, this is Hui. Yes, I think in first quarter, you may notice that our operating expenses did not grow at the same rate as revenue. I think this is a combination of various efforts. I think, if you recall in the past year or so, one of our biggest investments is mobile-related R&D. And being through over a year now, I think we've learned to be more efficient, particularly if you recall comments made earlier by Joe today, I think we are readjusting our sort of allocation of the mobile effort. We enhanced the investments in the existing business, the mobile initiatives such as Renren mobile, Nuomi mobile and gaming mobile. And for the other pure and new mobile initiatives, we'll take a much more entrepreneurial style with smaller teams, and we think that, that's probably the right thing and the best approach for this kind of new initiatives. So overall, the rate of growth will be slower than last year's. And on the other hand, I think we made a lot of the investments in the past 1.5 years. And some of them are going to see fruits for taking [ph] and the returns particularly mobile gaming, which, if we have a good quality games, of course, the revenue scale will grow much faster than the investment side. So -- but that said, I think in the coming quarters, we'll continue to make happy investments, partially for the Nuomi's expansion into new cities and Nuomi's efforts to gain more market share. So we'll continue to make more investment in that area. And also for gaming, it's relatively early. We also want to make sure that we invest sufficiently to further solidify our leadership in this relatively new market. And historically, just from a housekeeping point of view, we're moving into a new office which, in the short term, we'll generate -- we'll have a higher rental but after we move in, the rent income will come down. So in the next couple of quarters, we'll continue to see some increase in the operating expenses.

Andy Yeung - Oppenheimer & Co. Inc., Research Division

Got it. And then I just wonder if you can quickly touch base on advertising market environments right now. Do you see some pickup in the first quarter? How do you see the advertising market going forward?

Hui Huang

I think we actually mentioned this in the prepared remarks. I think, overall, it's still a bit of challenging for us due to intensified competition but also due to our massive shift of user time to mobile. If you recall, right now, 3 quarters of our user time is spent on mobile, which is relatively difficult to monetize at this stage. That said, from our demand -- from a market demand point of view, we see some slight recovery compared to last year's. But there's a different mix of performance for different categories or verticals. Some are doing better than the others. So overall, we remain cautious on the advertising revenue.

Andy Yeung - Oppenheimer & Co. Inc., Research Division

Got it. Actually -- can you actually remind me, like if you have turned on your mobile monetizations or advertising yet?

Hui Huang

We start to experiment in some more formats, but the actual monetization from those mobile advertiser is very immaterial at this stage.

Joseph Chen

There's some trial customers.

Hui Huang

Yes. There are trial customers.

Joseph Chen

Trial customers.

Operator

And your next question comes from the line of Echo He of Maxim Group.

Echo Yinghui He - Maxim Group LLC, Research Division

First one, about the revenue, just -- could you just talk about what's the major drivers of the growth of other value-added service revenue? And also, for 56.com, what's the split between that $4 million to $5 million revenues, between actually the virtual talent show and advertising revenue? And also on the cost side -- well, on the cost side, actually, my questions are already answered. That's just revenue.

Hui Huang

Sure, Echo. For the other IVAS, that includes Woxiu, the virtual talent show from 56, as well as VIP membership and the virtual gift on Renren. And Woxiu contributes approximately up to $3 million, more than -- I think it contributed [ph] between $2 million and $3 million of IVAS revenues. So the rest of that, as you know, is the -- for [Chinese] is advertising.

Operator

Ladies and gentlemen, and I'd like to hand the conference back to today's presenters for closing remarks.

Sam Lawn

We would like to thank all of you for your participation on the call today. Feel free to contact us if you have any further questions. Operator, this now concludes our call.

Hui Huang

Thank you.

Joseph Chen

Thank you. See you next time.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

This Transcript
All Transcripts