Giant Interactive Group's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 7.13 | About: Giant Interactive (GA)

Giant Interactive Group Inc. (NYSE:GA)

Q2 2013 Earnings Conference Call

August 6, 2013 9:00 p.m. ET

Executives

Rich Chiang – IR Director

Jazy Zhang – CFO

Wei Liu – CEO

Xuefeng Ji – President

Analysts

Timothy Chan – Morgan Stanley

Eddie Leung – Merrill Lynch

George Meng – Macquarie

Andy Yeung – Oppenheimer

William Huang – Barclays

Muzhi Li – Citigroup

Mark Marostica – Piper Jaffray

Thomas Chong – BOCI

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group's Second Quarter 2013 Earnings Conference Call.

(Operator Instructions).

Now I would like to turn the call to the moderator, Mr. Rich Chang, Giant Interactive's Investor Relations Director.

Rich Chiang

Good morning, ladies and gentlemen. Welcome to the second quarter 2013 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, Chief Executive Officer; Ms. Jazy Zhang, Chief Financial Officer; and Mr. Xuefeng Ji, President.

As we proceed through our prepared remarks, we will refer to our results presentation which can be downloaded from our website at www.ga-me.com. Following the remarks, Ms. Liu, Ms. Zhang and Mr. Ji will be happy to take your questions.

Before we continue, I would like to remind you that statements on this call that are not strictly historical in nature constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates and similar statements, and among others, include statements regarding the company’s expectations for sequential growth in the third quarter 2013 revenue and the timetable for testing and release of new games and expansion packs in the company's game pipeline. Our actual results and financial condition and other circumstances may differ possibly materially from the anticipated results and financial condition indicated in the forward-looking statements. For additional information on important factors that could cause actual results to differ materially from these indicated in these forward-looking statements. See risk factors beginning on page three of our annual report for fiscal year 2012.

In addition, please note that references in the presentation to dollars refer to US dollars.

Now I would like to turn the call over to our CFO, Jazy Zhang. Jazy?

Jazy Zhang

Thank you, Rich. Good morning and good evening everyone. I will begin by reading the opening remarks from our CEO, Ms. Wei Liu.

We are pleased to report a strong second quarter where our latest flagship MMO World of Xianxia has attracted a meaningful user base and is already contributing to our top line. Most of the sequential improvements of our operating metrics were attributable to the launch of World of Xianxia. Initial feedback from gamers have been tremendously positive, and we are confident that the game can reach new heights when we launch the open beta testing this fall. The launch of World of Xianxia is just the first example of our plan to launch at least one large self-developed title every year from now on.

The launch of World of Xianxia is also a critical milestone of our overall MMO strategy which remains our core business and key revenue contributor. As an innovator in online game play and monetization of the MMO segment in China, we are in a better position to further grow this business as a result of our peers' increasing focus on other new growth areas with lower entry barriers such as web games and mobile games. World of Xianxia also exemplifies our plan to further diversify our product lines outside of the ZT Online franchise.

We are also progressing well in our web and mobile game development. In the second half of 2013 we plan to launch two web games, Genesis of the Empire and Supreme Tai-Chi. Our development team is currently fine-tuning the game play mechanics of Genesis of the Empire and we expect the game to commercially launch in the third quarter. Supreme Tai-Chi is also a self-developed ARPG with a unique hero system based on a classic Chinese novel called Water Margin or Shui Hu Zhuan in Chinese. We expect the game to launch in the second half of 2013. Our internal mobile game development is also progressing well and we plan to launch our first mobile game soon.

In terms of updates for our other existing games, we have introduced new game play mechanics in ZT Online 2 which were based on gamers' feedback. In the third quarter 2013 we plan to release a new major expansion pack for ZT Online 2 which will introduce new professions and skills.

As for Glorious Mission, our first -- our self-developed first (inaudible) playable from the perspective of the Chinese army, we commenced a limited closed beta testing on August 1. In addition, we have been actively pursuing other publishing opportunities to complement our self-developed game portfolio. We are excited to announce that we have recently entered into an agreement to be the exclusive publisher of Cang Tian 2 for Mainland China. Cang Tian 2 is a free-to-play 3D MMORPG developed by WeMade of South Korea which is based on the three-kingdom period of Chinese history. Core development teams from both companies are currently working closely together on the localization of the game. We expect to begin an engineering testing in the first quarter of 2014.

Given the strong performance of our new and existing games as well as the prudent execution of our strategies, we are confident that Giant's success can reach new heights and deliver long-term value to our shareholders.

This concludes the opening remarks from Ms. Liu. And I will now walk you through our key operational metrics and financials for the second quarter 2013. Please refer to slide eight of our presentation.

In terms of our key operational metrics in the second quarter, active paying accounts or APA were up 3.1% sequentially and up 5% year over year to $2.33 million. Average revenue or ARPU were RMB244, up 2.5% sequentially and up 4.8% year over year. Average concurrent users or ACU were 702,000, up 1.8% sequentially and up 2.5% year over year. Lastly, our peak concurrent users or PCU were up 1.6% sequentially and up 0.5% year over year to 2.32 million.

The sequential increase in APA was attributable to the contribution from World of Xianxia, whereas the year-over-year improvement in [ACU] was mainly driven by contribution from the ZT Online franchise as well as World of Xianxia. The sequential and year-over-year increases in ARPU mainly came from ZT Online 2 as gamers have been spending more as they progress through the game. The sequential and year-over-year increases in both ACU and PCU were mainly due to the contribution of the World of Xianxia.

The healthy performance of our core game portfolio contributed to our positive financial performance for the quarter which is illustrated on slide nine and ten of our presentation.

Net revenue for the quarter was $95.8 million, up 2.7% sequentially and up 11.3% year over year. Our core business online game revenues grew 3.8% sequentially and 14.3% year over year to $94.2 million. The sequential and year-over-year increases in online game revenue were mainly attributable to the contribution from World of Xianxia.

Gross profit for the quarter was $84.2 million, up 5.4% sequentially and up 12.1% year over year. Gross margin was 87.9% in the second quarter compared to 85.6% in the first quarter 2013 and 87.3% in the second quarter 2012.

Total operating expenses for the quarter were up 23% sequentially and up 19.7% year over year to $26 million. As a percentage of revenue, total operating expenses were 27.1% for the second quarter 2013 compared to 22.6% in the first quarter 2013 and 25.2% in the second quarter 2012. The sequential increase in operating expenses was mainly due to the increase in sales and marketing while the year-over-year increases in operating expenses were mainly attributable to lower government financial incentives received in the second quarter 2013 as compared to the second quarter 2012, as well as higher sales and marketing expenses in the second quarter 2013.

R&D expenses for the quarter were up 4.1% sequentially and flat year over year at $13.2 million. As a percentage of revenue, R&D expenses were 13.7% in the second quarter 2013 compared to 13.5% in the first quarter 2013 and 15.3% in the second quarter 2012. The sequential increase in R&D expenses was mainly attributable to the bonuses accrued for the World of Xianxia development team. The year-over-year flatness reflects an increase in staff headcount and compensation over the past year, offset by decreased share-based compensation expenses which are associated with restricted shares granted in November 2011.

Sales and marketing expenses for the quarter were up 77.9% sequentially and up 13.2% year over year to $8.8 million. As a percentage of revenue, sales and marketing expenses were 9.2% this quarter compared to 5.3% in the previous quarter and 9% in the second quarter 2012. The sequential and year-over-year increases in sales and marketing expenses were mainly attributable to the market campaign associated with the World of Xianxia closed beta test.

G&A expenses for the quarter were up 9.4% sequentially and down 9.4% year over year to $5.6 million. As a percentage of revenue, G&A expenses were at 5.9% this quarter compared to 5.5% in the previous quarter and 7.2% in the second quarter 2012. The sequential increase in G&A was mainly due to higher professional service fees related to the company's yearend filing of its annual report with the SEC, while the year-over-year decrease in G&A expenses was mainly due to the decrease in share-based compensation expense.

Moving on to our bottom line, net income attributable to the company's shareholders during the quarter was up 12.7% sequentially and up 19.6% year over year to $59.9 million. The margin of net income attributable to the company's shareholders for the quarter was 62.5% compared to 56.9% in the previous quarter and 58.2% in the second quarter 2012. Non-GAAP net income attributable to the company's shareholders during the quarter was up 11.9% sequentially and up 13% year over year to $62.5 million. The margin of non-GAAP net income attributable to the company's shareholders was 65.2% compared to 59.8% in the first quarter and 64.3% in the second quarter 2012.

Basic and diluted earnings per ADS for the quarter were $0.25 and $0.24, respectively, on a GAAP basis, and $0.26 and $0.25, respectively, on a non-GAAP basis.

Moving on to our balance sheet on slide 11. As of June 30, 2013, our cash and cash equivalents and short-term investments totaled $543.8 million compared to $483.9 million as of March 31, 2013. The sequential increase was primarily due to the growth of the company's overall game operations.

We announced our semi-annual cash dividend for the first half of 2013 in the amount of $0.23 per ADS or ordinary share which will be payable to shareholders of record at the close of trading in New York on December 12, 2013. The total cash payment associated with this dividend will be approximately $55.1 million. The payment amount and date are subject to, among other things, the approval of our Board of Directors and compliance with applicable laws.

We are pleased with our performance this quarter and we expect revenue for the third quarter of 2013 to be flat to moderately up compared to the second quarter 2013.

That concludes our prepared remarks. Once again thank you for joining us today. And we will now open the line for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions).

Your first question from the line comes from Timothy Chan from Morgan Stanley. Please ask your question.

Timothy Chan – Morgan Stanley

Hi, good morning. Thank you very much for taking my question. My question is actually about mobile games. Could you maybe talk about the latest competitive landscape you see on the mobile game side? And what do you think will be the impact of [Weixing] new game center that was just launched a few days ago? And since you're going to launch your first mobile game very soon, what kind of promotion and distribution channels you're thinking will be more efficient? Thank you very much.

Jazy Zhang

Okay. Thank you, Tim.

(Chinese language spoken)

Wei Liu

(Interpreted). The first point to touch on upon our mobile strategy is that currently the landscape for mobile segment of the industry is very competitive, much more so than the MMO and the web game markets. And this competitiveness is increasing as time passes as well, because this is a selection of all the different mobile games out there.

For larger companies such as ours, it can be a little bit detrimental because of the small barriers to entry. A lot of smaller companies and startups have a lot of our copycats and small games and their goal is just to make profits very quickly. So the game quality can be very poor at times. But over the long run we're very confident that mobile games just like the rest of the industry will require good-quality games, elite games, to succeed, which is why we're very confident that -- and we want to concentrate on making the best games possible that are -- and provide sustainable growth.

Wei Liu

(Interpreted). As for our viewpoint on WeChat or [Weixing], it's going to provide a lot of competition for smaller games for other startup companies out there because obviously Tencent and [Weixing] have their own resources and it's a great platform, so there's going to be much more competition among the smaller games. And perhaps some of the smaller companies won't survive over the long term. But so far it seems like WeChat is a very good platform and it's doing well so far. So it could have a lot of potential.

As for our outlook on platforms to work with, for us at the end of the day, content is king. For good self-developed games or elite games, those are still going to be successful over the long term. So we're going to continue to apply our elite game strategy to mobile games as well, develop good IPs, good-quality games with deep game play, and hopefully long life cycles.

And if we can't get -- launch a game such as these, then it does present a possibility for us to publish good-quality games ourselves. But at the same time we would also consider cooperation with the various platforms and app stores out there for mobile games as well.

Timothy Chan – Morgan Stanley

Thank you.

Operator

Thank you. Your next question from the line comes from Eddie Leung from Merrill Lynch. Please ask your question.

Eddie Leung – Merrill Lynch

Hey, good morning. Thank you for taking my questions. I have two major questions. The first one is about sales and marketing expenses. We understand that usually when you launch a game, the sales and marketing expenses go up. So could you also give us some color on how should we forecast the sales and marketing expenses as we're heading into second half of the year after the launch of Xianxia?

And then related to that, it seems like the operating metrics, like ACU, APA, PCU did not increase a lot in the second quarter, even after the launch of Xianxia. And then as we look at your third quarter guidance, it seems to be also implying not a very strong sequential growth. So just want to get some color on the performance of World of Xianxia or is there any other games having -- have a decline so that it affects the overall operating metrics? Thank you.

Jazy Zhang

Thank you, Eddie, for your questions. I will answer part of your questions and I will leave the more technical part to Mr. Ji.

First of all, for sales and marketing, as you know that we explained in the earnings release that we incurred higher sales and marketing expenses in Q2 as compared to Q1 due to the marketing campaigns associated with the CBT for World of Xianxia. But going forward, in Q3 -- Q3 is going to be an eventful quarter where we will -- we have already launched the first expansion -- a major expansion pack for ZT Online 1. We will launch a major expansion pack for ZT Online 2 in the middle of August. Also we plan to do some major marketing campaign for our [ODT] for World of Xianxia.

So we will be busy into Q3. Therefore we do expect our overall sales and marketing expenses for Q3 to be higher than Q2. It will be around 12% of our total revenue. But overall for the second half of this year, we will be able to manage our operating margin to be within the range of 60% to 65% as we mentioned in -- on our call in early quarters. So that's the answer to your question, number one.

With respect to our conservative guidance to Q3, this is mainly due to the delay in launching our web games. As you know, all along we had been promoting our elite game strategy. We will not launch a game until we feel comfortable, we think it's really, it meets our high standard. That's the main reason for our conservative outlook for Q3.

I will ask Mr. Ji to provide further color to the game World of Xianxia.

(Chinese language spoken)

Xuefeng Ji

(Interpreted). In terms of our operating metrics growth after the launch of closed beta testing for World of Xianxia in April, obviously World of Xianxia is a very important new IP, new franchise for us, and in terms of our branding and also in terms of game design. Because the game play itself is very different from our well-know ZT series of games. So it's very important in terms of our diversification strategy.

But World of Xianxia is entirely new IP and franchise and this will take some time to establish itself, to make it much more well-known, as opposed to a more familiar game. So that's why the testing process is taking a couple of months, from April closed beta to the open beta in September. But, however, we've been very, you know, the performance of the game since April has exceeded our expectations, all in terms of user metrics and revenue, it's starting to contribute.

And also an additional point is that we've, in the past two months, we've already launched the game in the Taiwanese market with a partner over there and it's been the number one new game in Taiwan over the past two months. So we're very happy and very confident that there will be a lot more growth to World of Xianxia in the future.

Eddie Leung – Merrill Lynch

Got that. Thank you.

Operator

Thank you. Your next question comes from George Meng from Macquarie. Please ask your question.

George Meng – Macquarie

Hey, good morning. Thank you very much for taking my questions. I have two questions. The first one is a follow-up on the mobile game front. So you mentioned that you're going to launch your first mobile game and you mentioned you will continue to focus on the elite game strategy. So I just wonder what type of game -- what type of game will be your first mobile game. Is that actually going to be an MMO game or client-based MMO game or it's going to be like an ARPG game for your first mobile game? And also in terms of marketing channels, if it's going to be an existing [RBR], are you going to just using your own platform of publishing the game by yourself or are you going to work with other platforms? That's my first question.

Jazy Zhang

Okay. Thank you, George.

(Chinese language spoken)

Wei Liu

(Interpreted). As for our mobile development, currently we actually have two to three mobile projects in development and they span different genres. For example, in action role-playing games, RPGs and also popular genres such as car battle games. And depending on the testing results for these games later this year, we will determine which one of them to release first. And also depending on how they test, we'll see -- we will determine how we publish the games. If the testing results for our games are -- become very strong and we believe that it can be a very successful game, we may consider publishing the games ourselves on our own platform. If not, we will work with other platforms and app stores in the marketplace.

George Meng – Macquarie

Okay, thank you. And my second question is relating to your margins. I know that you guided basically 60%, 65% operating margin for the second half this year. Just given that you are going to also do some license games next year like Cang Tian 2 and also more mobile games, how do you see the margins going to trend maybe into next year? I assume that the license games will drag on your margins but also the web games may actually lift your margins. How will be the outcome for the margin trend? Thanks.

Jazy Zhang

Yes. Thank you for your question. At this point of time, it's really hard to project the revenue contribution coming from on new license game, even though we think it feels and looks like a triple-A title game, but it's really hard to estimate overall revenue contribution, and therefore it's hard to nail down the overall impact on margin. But I think if the game becomes a huge hit and we have sacrificed a few points in margin, I think that's a good thing.

George Meng – Macquarie

Okay, cool. Thank you very much. It's very helpful.

Operator

Thank you. Your next question comes from Andy Yeung from Oppenheimer. Please ask your question.

Andy Yeung – Oppenheimer

Hi, good morning. Thank you for taking my questions. My first question is about your recent license game, Cang Tian 2. When do you plan to launch that game in China? And when should we expect the licensing cost to hit your cost of goods -- cost of services line in your income statement?

Jazy Zhang

(Chinese language spoken)

Xuefeng Ji

(Interpreted). For Cang Tian 2, the new license game developed by WeMade in South Korea, this game has been in development by WeMade for a couple of years already. So it's, you know, almost ready. And currently we're working with them to localize the game for the Chinese markets. And we hope to start testing this game next year.

According to current plans and schedules, we expect to commence engineering testing for this game in early next year.

Jazy Zhang

And Andy, with respect to your question when the upfront license fee will hit the income statement, this will happen when we launch the game and start charging our gamers. But we do not expect any material impact to our income statement.

Andy Yeung – Oppenheimer

Okay, great. And then my second question is also a follow-up on your guidance. Can you -- because, you know, with the ramp-up of World of Xianxia and also the quarter seasonality, your guidance seems to be cautious. What are the factors that are driving that relative cautiousness in your guidance?

Jazy Zhang

As I mentioned earlier, this is mainly due to the delay in launching our web games, even though we are doing quite a few, we're going to launch expansion pack for ZT Online 1 and 2, open beta testing for World of Xianxia. But I think until we have much further visibility, at this point of time we would rather be cautious and conservative.

Andy Yeung – Oppenheimer

Okay, great. Well, thank you so much.

Jazy Zhang

Thank you.

Operator

Thank you. Your next question comes from William Huang from Barclays. Please ask your question.

William Huang – Barclays

Hi, good morning. Thank you for taking my call. I have two questions. First question, just a follow-up on the Cang Tian 2, seems the game -- previously it's a version one and used to be operated by some other company and it seems not very successful. So just want to know what is our rationale to license this game, and do we see any big difference or improvement for this game title?

And also my second question is about a new product called Quanebao which is similar to Alibaba's. Local press already reported GA launch -- on ZT Online 2. Just want to get a good sense what is your strategy behind that, and how are we going to monetize our products or should we expect any benefit to GA's game business? Thank you.

Jazy Zhang

Thank you, William, for your questions.

(Chinese language spoken)

Xuefeng Ji

(Interpreted). As for the reason why we -- agreement to license Cang Tian 2 from WeMade despite the fact that Cang Tian 1 was not a huge game in China over the past couple of years. It's not exactly a big failure. It did okay. Now Cang Tian 2, although it's called using that same franchise name, it's very different from the original game. We believe it's a huge improvement over the original game. And the development team is very different as well. It's developed by a lot of the original team who worked on the Legends of Mir series. And as you know, that had become a very hugely successful game in China.

And so the reasons why we like Cang Tian 2 is a couple of reasons. You know, it passed our internal evaluation teams with very good results. As you know, we've been very selective in selecting license games. So this demonstrates that it's a very well-developed game in terms of graphics and game play and other criteria. And obviously WeMade has a lot of experience in the Chinese market, knowing what Chinese gamers want due to their success in the Legends of Mir series. And through our interaction with them so far, we believe that we can work together very well.

For this new system called Quanebao in Chinese that we created, it's purely a value-added service, purely in ZT2. When we established this, we actually did not think that the media and press would blow out of proportion and think that we were getting into online payments or e-commerce. This is a purely -- as you know, ZT2 has innovative, revolutionary third-generation in-game economy system with gamer-to-gamer trading. So we wanted to provide more incentive for people to engage in this. And Quanebao is purely in-game virtual currency and item rewards system.

Operator

Thank you. Your next question from the line of Muzhi Li from Citigroup. Please ask your question.

Muzhi Li – Citigroup

Hi, good morning. Thanks for taking my questions. I would like the management to share the view of how the mobile game market could develop potentially in the future and at the same time how the mobile game could cannibalize the desktop and web game market because users are spending more time to play games. And if the devices become more powerful and the mobile games could attract more of the hardcore players to spend more time on the mobile game and how is the company going to deal with this? Thank you very much.

Jazy Zhang

(Chinese language spoken)

Wei Liu

(Interpreted). In terms of the mobile markets in China, as you know, the market share of mobile games is still very small, in single digits, around 5% of total revenues for the marketplace. So it's still small but growing very fast, probably the fastest segment. And in the future, yes, in terms of PC usage, obviously some basic functions and tools will move to mobile. However, in terms of gamers and especially hard-core gamers, we don't believe that a lot of hardcore gamers will transition or completely move to mobile due to a lot of different factors. Hardcore gamers still have high criteria in terms of the screen size, controls, how deep the game play is, overall user experience. And these are some of the factors that they cannot get from mobile games.

So mobile games, the reason behind their usage is going to be more for convenience whereas for PC games, larger screens, there's still going to be room there for a lot of these hardcore gamers to find what they need. So in the future, we think that there's room for both. There's still going to be hardcore gamers playing big client based games or MMOs, but over time they're, you know, they're going to get picky and pickier, which is why we're going to continue focusing on our elite game strategy to create the best high-quality games as possible. But in terms of the mobile front, yes, there's going to be a lot of new innovations, and in terms of -- lots of potential in terms of scale and users. So we have a very bright outlook in that front as well.

Operator

Thank you. Your next question comes from Mark Marostica from Piper Jaffray. Please ask your question.

Mark Marostica – Piper Jaffray

Thank you for taking my question. My first question relates to the micro-client version of ZT2. And I'm curious if it was a material contributor in the quarter. And then a tie-on to that is whether you're contemplating a micro-client version of World of Xianxia.

Jazy Zhang

Great. Thank you, Mark.

(Chinese language spoken)

Xuefeng Ji

(Interpreted). In terms of micro-client games, as you know, Qianjun or micro-client version of ZT2, we started collaboration on Qihoo360's platform last year. Done very well. This year it's entered into a more stable performance state. But in the second half this year we are planning to launch the game, this version, on additional one or two more platforms in China, and probably change the IP or the name, although the game play will stay the same.

As for World of Xianxia, we currently have already launched the micro-client of the game on our own platform, but later this year we may look at cooperation for the micro-client version on other platforms as well.

Mark Marostica – Piper Jaffray

Okay. Just one quick follow-up on World of Xianxia, I'm curious whether the game is drawing a larger female audience than your core games, say ZT2 or ZT Online 1 series. Thanks.

Jazy Zhang

(Chinese language spoken)

Xuefeng Ji

(Interpreted). In terms of the user base for World of Xianxia, the percentage of female users might be slightly higher than our ZT series of games. But it's not a major difference. We will say that the user base overall for World of Xianxia is different than the users who like the ZT series games. ZT is known for large-scale battles and [PK], so it attracts users who are probably more aggressive and love combat. Whereas the World of Xianxia players, it's more about small team, group versus group battles. So it's attracting gamers who rather enjoy more teamwork or cooperation.

Mark Marostica – Piper Jaffray

Thank you.

Operator

Thank you. Your next question comes from Thomas Chong from BOCI. Please ask your question.

Thomas Chong – BOCI

Hi, good morning. I have two questions. The first question is relating to your 2014 outlook. Given Giant will launch a blockbuster self-developed client-based games each year going forward, should I regard Glorious Mission to be the next blockbuster game for next year? This is my first question.

Jazy Zhang

(Chinese language spoken)

Wei Liu

(Interpreted). In terms of our 2014 outlook and pipeline, 2014 we will have a few games that should be able to launch, including a couple of self-developed and very innovative games. Our President Ji and his, you know, his own team are developing a new MMO game that's currently in development and should begin engineering testing at the end of August. We also have one or two more MMO games. One is an action MMO, one is a 3D martial arts MMO that should be able to enter into various testing phases later this year.

And as for Glorious Mission, as you know, it began limited closed beta testing on August 1. Currently we're working to gather feedback from gamers and continue to tweak the game to help to improve it. It's a very limited state in its testing process so far. And based on the feedback and tweaking process, a larger scale closed beta test will be determined at a later point in time.

And also next year, as we have announced, we will begin publishing Cang Tian 2 which will be -- would also be a very important game for us next year.

And also our web and mobile game development, we will launch a couple this year. And also based on the testing processes and the user feedback and results, next year we should have additional handful of web and mobile games as well.

Thomas Chong – BOCI

Thanks. And my second question is relating to the total number of R&D headcount in the second quarter. May I know the mix between client-based, web games and mobile games? And I remember last quarter you talked about there should be about 100 mobile games developer by the end of this year. Should I expect this to be on track? And how should I expect the total number of R&D headcount in each of the game segments to be in 2014? Thank you.

Jazy Zhang

(Chinese language spoken)

Xuefeng Ji

(Interpreted). As for our R&D headcount, currently we have a little over 1,000 developers at the company. Currently we have around 100 mobile developers, a little over 100 web game developers, and the remaining are still working on client-based games.

Going into 2014, next year we will probably grow our mobile development teams, but not by a significant amount, probably around 150 to 200 developers, and not much change for the other departments. And in terms of our overall outlook, we believe for a large company such as ours, it's all about quality over quantity. So we're not going to multiply our headcount by several times like some of our competitors.

Operator

Thank you. As there are no further questions at this time, I would like to hand the conference call back to Mr. Rich Chang. Please continue.

Rich Chiang

Thank you again for joining us today, and we look forward to talking with you about our progress in the near future. Have a nice day.

Operator

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

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Giant Interactive (GA): Q2 EPS of $0.25 beats by $0.02. Revenue of $95.8M (+11.3% Y/Y) beats by $0.31M. (PR)