Renren Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug.15.13 | About: Renren Inc. (RENN)

Renren (NYSE:RENN)

Q2 2013 Earnings Call

August 14, 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

Cynthia Jinhong Meng - Jefferies LLC, Research Division

Gillian Chung - Morgan Stanley, Research Division

William Huang - Barclays Capital, Research Division

Alan Hellawell

Echo Yinghui He - Maxim Group LLC, Research Division

Long Lin - Brean Capital LLC, Research Division

Chao Wang - BofA Merrill Lynch, Research Division

Jose Pun - Macquarie Research

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

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Renren Inc. Second Quarter 2013 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 15th of August 2013. I would now like to hand the conference over to your first speaker today, Mr. Sam Lawn. Thank you. Please go ahead, sir.

Sam Lawn

Thank you, and welcome to our second quarter 2013 Earnings Conference Call. Joining me on the call today 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 second quarter of 2013. This will be followed by 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 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. Our second quarter revenues of $49.6 million came in the range of our adjusted guidance, as we pronounced earlier. Q2 revenues came in lower than we originally anticipated mostly due to delays in our gaming pipeline for Android. We faced a short-term challenge in our monetization efforts that may be felt for the remainder of the year. However, from a business fundamental standpoint, we're on track in executing our strategic plans for each of our business divisions. I'm confident to say Renren continuous to evolve into much better positioned and efficient mobile company with a relentless dedication to mobile services.

Our priority in the past quarter was aimed at further improving user experience on Renren mobile app. We released multiple upgrades with many improved and innovative functions. We're pleased to see that our efforts are paying dividends as the growth in Renren user numbers and our mobile traffic continues to be healthy despite the intense competition in the sector. Our Renren.com SNS platform now has activated user base of 194 million, up 20% from 162 million a year ago. In June, our monthly unique log-in users reached 54 million at the end of the second quarter, up from 45 million a year ago this period. If you couple our sustainable growth with the fact that nearly 80% of our traffic comes from mobile, you can see that our user community continues to be strong with our mobile efforts well received.

Let me now go over our business lines in more detail. First, gaming. For a few quarters, we have prepared towards penetration into the Android market. And this phase is taking a bit longer than we anticipated. The next wave of growth for games, largely monetizing this enormously untapped but highly fragmented market opportunity. Making the right entry is critical as competition is rising with mobile gaming technology and user demand is rapidly becoming more sophisticated. Therefore, we're building a robust pipeline of new titles for both Android and iOS, which have been carefully designed to meet our users' high expectations. We expect to begin releasing our pipeline towards the end of the third quarter, as James will update later in more details.

We continue to be optimistic about mobile gaming market for the long run and see a variety of opportunities in front of us. In terms of revenue expectation, though, new games inevitably carry a hit-or-miss risk while typically taking time to gain tractions and ramp up. As the launch of our pipeline had been delayed, we're now more cautious on gaming revenue outlook for the second half of this year.

In advertising, revenues grew slightly due to continued migrational traffic to mobile plus strong competition. We saw the impact this quarter mostly through SME advertising as SME advertising currently only has access to PC inventory available, which is nearly around 20% of our total traffic. Renren advertising was also effective but to a lesser extent as we are able to support the brand advertisers through creative campaigns and differentiated services. That said, the outlook on our advertising for the remainder of the year remains soft as high mobile migration and the competition will effectively stay along the same lines.

I'm pleased, though, to report that we will start selling mobile advertising by the end of the third quarter, first through models such as sponsor stories and news feed. While we do not expect any meaningful revenues from mobile advertising this year, we believe once advertisers in China understand how mobile advertising is effective, we can begin to build upon mobile traffic, which is now the majority of the old inventory.

Our short-term goal is to create better management tools to show the effectiveness of mobile advertising while further educating this nascent [ph] market. This will be an important step in creating an advertising road map for 2014 and beyond.

Turning now to our social commerce business, Nuomi. As I explained last quarter, we're now a leading player in expansion mode with presence in over 80 cities, up from 59 cities in the previous quarter. We have been patient in this business, and now it's our time to ramp up market share as exemplified by the 16% sequential growth in GMV sales, gross merchandise sales, normally achieved in the second quarter. While the group-buying sector further consolidates, Nuomi's prospects also continue to rise with mobile commerce adding a new dimension of growth opportunity. We're confident in Nuomi's emerging position to be ultimately rewarding.

In summary, we're at a pivotal time in building our position as the entire Internet industry is in transition to mobile. While frequent Renren mobile upgrades and improved features continue to deepen user engagement, we're positive about progress in building a robust pipeline mobile and cross-platform games, Nuomi's strong position during a consolidating phase in group-buying and getting our mobile advertising initiatives ready to explore the market. The stages in development in our business remain on track, and our priorities are very clear.

With that, I'll pass the floor to James for the operational review.

Jian Liu

Thank you, Joe. Let me begin first with an update on the details of our mobile metrics. In the second quarter, mobile penetration of our daily unique log-in users maintained a steady average of 65% with an all-time high of 67% in the month of June. Once again, we had a record high in mobile time penetration of 77% as compared to 74% in the previous quarter. Even as competition rises, our aggregate engagement time per user remains at healthy and sequentially similar levels, reflecting the stickiness of our platform.

On the mobile initiatives front, we launched the Renren mobile updates more frequently this quarter. We released a total of 13 updates on iOS and Android with improved user friendliness and new engaging features. A few examples include more variety in filters and personalization for photos as well as new group chatting services for deeper social sharing and connecting. We will continue to further upgrade our features as user experience remains our top priority.

Let me now discuss our gaming business. Gaming revenues were flat year-on-year as we delayed the launch our top line with some of our older games reaching mature stage. At the end of the quarter, we had 15 in-house titles and 38 third-party games in operation. Similar to our last quarter, our top 5 games are all in-house developed.

We expect to launch multiple games in the next 2 quarters, but note that we plan to start the launch of these games late in the third quarter. The pipeline will be a mix of advanced casual [ph] games, card collection [ph] games as well as RPGs and strategy games, all of the new mobile titles available of both Android and iOS with majority of them cross-platform enabled.

The pipeline will definitely test our feasibility to provide a carefully selected and diversified genre of games in a new world of mobile gaming, at the same time further building a robust pipeline in 2014 in close cooperation with third-party game developers as well as licensing top-quality third-party games.

Now a quick update on Ader, on mobile gaming, advertising and exchange network. This platform continues to grow, and we are preparing to -- for expansion into the Android market. Ader offers great insight as a game distribution platform with leading promotional channel, which is a key element to this business. Through the exchange, we're able to fill our own mobile gaming promotional needs while also sell to third-party advertisers.

The true value of Ader is our ability to measure and target the highest return on app promotions. The data analytics and insights gained from this initiative will be a major advantage in the long term. Our recent partnership with Flurry's analytics is a good example of how important we believe this initiative will help differentiate our gaming business. Our goal now is to grow the Ader platform into one of the largest mobile advertising exchange in China.

Turning now to Nuomi, our group-buying business. In the second quarter, we reached a record high of USD 120 million in total gross merchandise value, or GMV, sales, representing a 58% increase year-over-year. Active paying users this quarter also reached a record high of 3.8 million with a repeat ratio of 55%, another record high. For the sixth quarter in a row, our repeat paying user ratio is up quarter-over-quarter, showing Nuomi consumers are growing more sticky and loyal. In addition, very encouragingly, mobile purchases continue to represent around 30% of total sales. Commission rates, however, remain relatively unchanged around 5% to 6% as the competition among the few remaining top players is still strong. However, we're confident that Nuomi is well positioned to benefit from further improved economies of scale and sector consolidation. That is why, as Joe previously mentioned, we have made the decision -- a decisive move to capture more market share.

Finally, a brief update on 56.com. Our user metrics, such as daily visitors and video viewerships, continue to strengthen in the second quarter as a result of our investment and focus on user experience. As we begin to gear up for a deeper mobile development around 56 service, our goal is to create a tighter integration with various mobile features in the next few quarters to fully leverage our platform synergies. As such, we remain dedicated to our user-generated content strategy, and we'll continue to expand our service in this direction.

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

Hui Huang

Thank you, James. Hello, everyone. Let me provide you the financial highlights for the second quarter of 2013. Our total net revenues for the second quarter were $49.6 million, representing a 10.7% increase year-over-year.

Now let me walk you through the major revenue components and trends. First, Renren net revenues, which include games, other IVAS and advertising revenues, were $43.4 million, representing a 5.5% increase year-over-year. Online game revenues were $22.8 million for the second quarter of 2013, a 1.4% increase from the same period of last year. Other IVAS revenues were $5.2 million for the second quarter of 2013, a 43.5% increase year-over-year. This increase is largely due to the increasing popularity of our virtual talent show services, Woxiu, provided on 56.com.

Online advertising revenues were $15.4 million for the second quarter of 2013, representing an increase of 2.4% from the same period in 2012.

Second, Nuomi. Nuomi net revenues were $6.2 million, representing a 69.4% increase year-over-year. Nuomi's active paying users were 3.8 million for the second quarter of 2013 compared to 2.6 million from the same period last year, a 44.2% increase.

Now gross profit. Gross profit in the second quarter was $31.7 million, a 13.7% increase year-over-year. As a percentage of the total net revenues, gross margin increased to 64% in the second quarter compared to 52% in the same period of last year.

Operating expenses in the second quarter were $66.4 million, a 32.6% increase year-over-year. The increase in total operating expenses was mostly due to sales and marketing expenses relating to the promotion of games as well as increased headcount and personnel-related expenses for Nuomi.

Next, loss from operations in the second quarter was $34.7 million compared to a loss of $22.2 million in the same period of last year. The increase in loss from operations was primarily due to the increased investments in our gaming business as well as our significant investment in R&D and the mobile-related initiatives.

Our net loss in the second quarter was $9.3 million compared to a net loss of $24.9 million in the same period of 2012. The difference in net loss versus the operating loss was the earnings pick-up through equity method investments in the second quarter of 2013.

Adjusted net loss, a non-GAAP financial measure was $3.8 million for the second quarter of 2013 compared to $21.8 million adjusted net loss for the second quarter of 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 June 30, 2013, the company had cash, cash equivalents and short-term investments of approximately $836 million.

Now let me provide you a quick update on our share buyback program. The company completed its original $150 million repurchase program during the second quarter. On June 28, 2013, the Board of Directors authorized a new share repurchase program to repurchase up to $100 million of its ADS within one year. During the second quarter of 2013, we repurchased approximately 8.9 million ADS shares.

Finally, let me provide you our top line guidance for the third quarter of 2013. For the third quarter, we currently expect to generate revenues between $49 million -- $47 million to $49 million representing a 3% to 7% year-over-year decline. This forecast reflects our current and preliminary view, which is subject to change.

And this concludes our prepared remarks. Now we'd like to open the call for questions. Operator, please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jiong Shao from Jiong.

[Technical Difficulty]

Operator

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

Cynthia Jinhong Meng - Jefferies LLC, Research Division

I would like to have some more color on the group-buy market opportunity. Where would you expect the consolidation of overall group-buy industry be done, and -- so that we can see some profitability coming through? And how big could the O2O market opportunity be? And how would Nuomi address it -- Nuomi and Renren address it? Second question would be on the -- can you update us on the operating expenses of Nuomi for this quarter? And should we expect to see breakeven on that business towards the end of the year? Or is that going to be an event sometime next year? Lastly, on the gaming side, just wondering, what caused the delay in the launch of new mobile and cross-platform games for the Android market? And when would we expect the launch to be? Is that going to be third quarter?

Joseph Chen

Cynthia, this is Joe. Thanks for the question. I think also Hui, James will address your second part of your questions. And let me address the big picture part of your Nuomi questions. And we remain, as we have always been, remain really bullish on the size and opportunity of the group-buying or -- and to a certain extent the much bigger overall category of OTO marketplace. My personal view is that this market is getting to a size where it's approaching the size of that in U.S. primarily due to the Chinese consumers living in urban areas being small and similar [ph] in big cities. Under very large pressure have been making very large part of their income available for consumer durables such us housing and cars, right? So basically, the money left for the other part of the consumption is relatively smaller in terms of percentage relative to U.S. consumers. So even though the consumer market in China is 3x smaller than U.S., nevertheless the OTO and the group-buying market because of that dynamics is actually quite big. So if you look at the top 5 group-buying players in China in terms of total transaction, it's probably around $0.5 billion per month now. That's compared with Groupon U.S. The local part of that Groupon business on a monthly basis is already exceeding that. So, I mean, my first one in that, this market is huge. And then I think in terms of OTO consolidation, we -- and also the consolidation of the group-buying, I think that we're probably in the middle of -- it's like a ballgame, right, in the top line, which is basically the [Chinese] game. In middle stage of the development where strategic moves and large-scale investment will determine the outcome because this is a business where battles are fought city by city. And concentrated firepower in bigger cities can change a lot of things. This is a network business, but it's actually as -- it's a network business not as concentrated as Taobao type of C2C marketplace. It's a -- so -- but it's very impactful, I might add, but the -- for the users' time. And so my view is that we're in the middle of that consolidation development. I think it's going to take probably 2 years to finally consolidate for the group-buying and probably 1 more year or 2 more years for the overall OTO market to consolidate. And again, for OTO market to consolidate, group-buying is a critical chain -- part of the -- piece of the puzzle, probably the most important piece of puzzle for that game. And OTO market, I think, is a gigantic marketplace that probably rivals that of the B2C e-commerce. And so it's huge. I anticipate big players investing a lot of money in this overall economic [ph] space. So that concludes my part of the answer.

Hui Huang

Cynthia, this is Hui. Let me take your second question, which is related to the operating expenses for Nuomi. In second quarter, yes, Nuomi incurred even more operating expenses than the previous quarter. If you recall our conversation in the 2 previous quarters, we mentioned that we made a decision to ramp up the investment in Nuomi and to capture more market share. So as a result of that expansion strategy, we increased the number of the cities from 59 at the end of the first quarter to now 82 cities. So with more cities, we hired more sales force, and that will incur related operating expenses. But we think that's a necessary and as well as a planned investment to further increase Nuomi's market share in the space and consolidate its leadership. And now I'll pass to James to answer the third question you have, which is the gaming, why the cause of delay, I believe.

Jian Liu

Yes, Cynthia, this is James. Thanks for the question. For our games, over the past 1 or 2 quarters, most of our efforts are focused on -- in terms of gaming development, importing existing games onto the Android platform. It turned out that it took a little bit longer than expected because this is really the first time we're importing our existing games from iOS to Android and developing new games for Android. So it took a little bit longer for us to co [ph] complete. The second reason is as the market matures, users are getting more sophisticated. And over time, we have also decided it's the right kind of policy to raise bars for game release, and by which, I mean we have set very stringent rules in terms of a lot of metrices. So games need to meet these various kinds of requirements such as registered user conversion rate to paying users, new user retention rate and stuff like that. So unless the games, after co [ph] complete, really pass these very stringent requirements, we'd rather bring them back to some more polishment. So that's really causing the delay of the launch of our games. But in terms of the gaming launching time, to your last question, we -- at this point, we are looking to start launching some of our games starting from late Q3. So starting from September. And you will see more titles being launched in Q4 and Q1 next year.

Operator

Your next question comes from the line of Gillian Chung from Morgan Stanley.

Gillian Chung - Morgan Stanley, Research Division

So my first question is about mobile games. What do you think about the WeChat platform, which received very strong reception so far? And what's your view on how that would change the mobile game competitive landscape? And my second question is about the -- what caused the decline in the log-in user numbers this quarter?

Jian Liu

So -- sorry, Gillian, the second question is the reported log-in number? You mean the log-in number for Renren?

Gillian Chung - Morgan Stanley, Research Division

The -- there's a decline in the log-in number.

Jian Liu

The monthly active user number?

Gillian Chung - Morgan Stanley, Research Division

It's the monthly active SNS user number.

Joseph Chen

Let me -- so Gillian, this is Joe. Let me address your questions. First, mobile messaging platforms, whether they're going to transform the mobile gaming industry, well, I think just like on PC, development chain of gaming is in 3 parts. One is the distribution, which has the biggest scalability, and Renren [ph] is the biggest play on PC. And then you have the operations, which basically are companies who don't develop games but operate games by buying traffic and moving user to a game and improving the gaming experience by launching different activities in sites [ph]. So that's the second one, but it's the -- it's a low-margin business. And then the third is the development as the companies that does R&D. So for Renren games, we're primarily an R&D shop, which is actually from the majority of revenue coming from our in-house developed games. And we have distribution business. That's about 20% of the business. It's high margin. It uses our existing base. So I think that mobile is -- the distribution part of that profit, aggregate profit will increase because right now, it's very small. And most of that profit is captured by app stores. So going forward, the -- any platform with large user base, such as mobile messaging, such as social networking, will start to compete with app stores for that portion of the net profit, which I think that is going to be a multiyear increase. And for Renren, we're going to remain very focused on developing cutting-edge mobile gaming experience, and that -- so -- but isn't not going to be too much difference, and we anticipate the world is going to develop like this. On the second one, your MAD [ph] number question, basically, as we indicated about 2 quarters ago, that we had a large increase in Q4 last year. That may be because we launched a onetime email campaign to bring back some of the users for end of the year celebration on Renren. So that quarter number was high. And then this year, we'll go back to a normal 20% yearly increase. So this quarter, compared to last quarter with the same -- last year as we would go back to normal growth.

Operator

Your next question comes from the line of William Huang from Barclays.

William Huang - Barclays Capital, Research Division

I have 2 questions. My first question is regarding your Q3 guidance. Will you be able to give us a few more details in terms of the revenue breakdown such as how should we expect online advertising and the gaming business growing for next quarter? And my second question is about original or social network business. How -- can you update us the current competition landscape? And for long-term perspective, how should we position Renren's mobile apps compared to peers like Weibo and Weishing [ph]? And what is the trend so far in terms of the daily time spent per user, particularly for mobile smartphone users?

Hui Huang

William, this is Hui. Let me address the first part of your question, which is related to third quarter guidance. I think that we indicated our total revenue range for the third quarter in our press release this morning. As Joe opened the prepared remarks this morning, we do acknowledge that in near term, we may have some short-term monetization challenges. A very significant part of our traffic on renren.com is now mobile, almost 80%. And for that, the monetization is left behind. So that will continue to have some pressure on our advertising business in the near term until our mobile advertising business has started to take off. But we expect that for this year, the total amount of mobile advertising on Renren will be relatively small. So with that, as we've mentioned in our prepared remarks earlier, we think the trend for advertising business will be very similar for the remainder of the year versus what we saw in the first 2 quarters. And then the other major components of our revenues, gaming, again, as we mentioned in our prepared remarks, the launch of some of the new titles are delayed, and most of the new games will be launched at the end of the third quarter. So as a result of that, those new games will not contribute any meaningful revenue for the third quarter, and we would hope to see there impacting fourth quarter. So as a result of that, the third quarter gaming revenue will continue to be soft. I hope this provides a little bit more color on the third quarter revenue guidance. And James will answer your second part -- or Joe will answer the second part of your question.

Joseph Chen

I don't exactly remember the question but I -- let me answer the way I remember it. So let me lay out to you our observations on mobile advertising here. One is that SMEs moves easier to mobile. That's because they care about results and versus branding customers' needs large third-party management platforms, to manage the factor engagement over the ad campaign. So on PC, that's already established. But on mobile, there's no currently dominant third-party to support that. So I think that's a major roadblock for brand advertising moving online. And of course, the more important thing might be just the slow adaptation of advertisers moving that brand advertising revenue onto mobile. And thirdly, large companies with large advertising on PC will find it easier to migrate, because the total mobile budget is so small from the advertising agency standpoint, they typically find it much easier to swap that small tiny budget into one large company as a small percentage of the allocation for that particular company. So generally speaking, for more established companies with large PC-based brand ads would find it easier to add onto mobile. So for those 3 observations, we are at a slight disadvantage. But, as I stressed earlier, 80% of advertising inventory in terms of user activity is on mobile now. So we successfully transitioned our users to mobile. And so going forward for us, continue to grow the user base on mobile, based on the particular capabilities of mobile phone. And secondarily, really what will be hard to move the advertising business, particularly brand advertising, customers onto mobile as well. So we're making some progress, but have not yet had numbers to show that.

Hui Huang

And I think you also had a specific question on the total time spent on our renren.com social networks. So let me address that very quickly. We are very pleased to see that the -- both the total aggregate time spent on Renren, as well as the per user time spent per month, both showed increase in second quarter compared to the previous quarter. As James just mentioned, in the past quarter, Renren mobile app had many frequent upgrades and with the improved featured functions, and all those helped to further engage our users. And one result is that they start to spend more time on those mobile applications. So as a result of that, we're very encouraged to see the time spent has increased.

William Huang - Barclays Capital, Research Division

Okay, just a very quick follow-up. How is the performance so far for the game business [indiscernible] on iOS platform? And do we see kind of growth slowdown down due to any intensified competition?

Joseph Chen

William, in terms of our gaming performance in iOS platform, as we mentioned earlier, most of our development efforts are focused on importing existing games into Android and developing new games. So today, due to the delay of these launch of new games, iOS still carries mostly relatively old games from the last year. And as we mentioned earlier, many of these old games are coming to a more mature stage of life cycle. And therefore -- and at the same time, the majority of our revenue, 80%, still comes from our own in-house developed games, that explains why our gaming revenue growth have slowed down. Having said that, your observation on competition intensifying is true. But the market is huge. The market opportunity on mobile is tremendous. So we don't think it's getting to a very highly competitive stage to slow down the growth yet. Thank you.

Operator

Your next question comes from the line of Alan Hellawell follow-up from Deutsche Bank.

Alan Hellawell

I just, like a lot of us are, have been trying to sharpen my pencil more on modeling the mobile games opportunity and really just kind of curious if you can share any other qualitative or quantitative observations given your first-mover status in terms of the ARPU cycle and any other dynamics that we should consider as we start modeling and growing this part of the business.

Hui Huang

Alan, this is Hui. Let me quickly provide what we could talk about here. In terms of the drivers of the gaming revenues for ARPU, I think, in the second quarter, we see very similar levels compared to first quarter, the previous one. And in terms of total number of playing users, again, it's at similar levels, but we do see a slight decrease in the number of paying users. As James mentioned earlier on, most of our previous games have come to a more mature stage, so some of the old-paying users probably start to pay less. But meanwhile, the new games have been launched. So once we launch new games towards the end of the quarter, we'll be more happy to share the update -- updated set of metrics with you.

Joseph Chen

Alan, this is Joe. Let me quickly add another point, which is that I think that after the -- I think the past year or so, the mobile gaming in China probably is equivalent to a Wild West stage of the U.S. expansion to west. But I think that right now, the settlers has already reached California. So now the -- I think the stage is basically did not grow [ph] of quality as well as the user demands are much higher than one year ago. So therefore, for any game who wants to be smashingly successful that there's going to be a significant amount of development and resources put in. So quality has to be much higher.

Operator

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

Echo Yinghui He - Maxim Group LLC, Research Division

First of all, how many advertising customers do you have during the past quarter? And also compared to the first quarter and same time last year, what's the number, how much that number has changed? Second, regarding your mobile or overall advertising revenue, you just said that 80% of traffic is from mobile users or mobile usage. And what I want to say, wouldn't you want to sell your -- like the ads on your platform as a package, combining PC and the mobile side, so that, actually, your exposure to each advertising pieces would be the same, so that would be similar attractive to your advertisers, so you wouldn't have that much decline. I'm just not sure what's the operation there, for your customer has to view your PC and mobile side separately. And the last one, I want to ask what about your -- considering if you want to divest this Nuomi platform?

Hui Huang

Echo, I think you have 3 questions. Let me take the first one, and leave the second and third to Joe. I think the first question is regarding the number of customers as well as their ARPU for our brand advertising. As you probably recall, in the previous quarters, we mentioned that we don't disclose the number of accounts on a quarterly basis, but we do provide on annual basis. Part of the reason that some other brand advertisers, they do campaign and it's very seasonal, so it does not really provide lot of value by comparing the number of accounts in this quarter versus same time last year. But I still can provide a bit of color in terms of trend. I think for this quarter, we see an increase of the average spend from our brand advertisers compared to the same period last year. But slightly less number of accounts given our focus of serving our larger accounts with very deep-level services and differentiated campaign over this [ph]. So that's what I can share with you. And the second topic?

Joseph Chen

Yes, so if I honestly [ph] correctly, Echo, that you asked me about whether the customers are willing to look into combining their campaign both on PC and mobile. Actually, in Q2-related assets, that's absolutely the right mood for the customers. We've been trying to sell our advertising that way. But I think the biggest obstacle for that is that is basically you need a mobile -- highly functional mobile mini site to engage the users who clicks through ad. And in China, because of the slow speed of the 2.5G, 3G network, typically, that conversion experience and engagement experience, and not because you click through -- once you click through into a mini site, that's based web browser, HTML5 or HTML, from integrated experience of a major client, you basically lose a lot of user engagement that way. So -- and secondarily, the customer always wants management engagement as well. So basically fitting that mini sites for the campaign on is, I think, it's a major undertaking for everybody. So that answered the first question. But we do have some level of integrated campaign so far for customers who are launching new products, new category products, where their primary focus is exposure, right? So we do have a few large brand customers already spending money with us in that regard.

Echo Yinghui He - Maxim Group LLC, Research Division

So in other words, you are saying that for mobile advertiser -- I'm sorry, I just want to finish. Mobile advertiser, people would look at the performance base more than just a simple display, right? Is that what you're saying?

Joseph Chen

Yes. So that goes to -- okay, if you look into Renren PC websites, we have a social advertising spot 2, spot 3 and occasionally spot 1, supporting these SME customers, when we have excessive inventory available from the lack [ph] of those brand customers. Brand customers always go first, all right? So and then, is there any available inventory on PC which serve the SMEs. But on mobile, so far, we have not yet been able to serve these SME customers on mobile, because we only want brand customers or mobile inventory. Because if there's only one inventory, if you want to serve it, then we'll want to serve brand. We don't care -- basically, we want user experience at this stage. So we don't want to sort of disrupt the user experience by serving SME ad, which typically are not well designed and not well liked by user if you serving right in front of them. So basically, the first stage of mobile advertising for us will primarily be migrating or brand advertising to that. So -- and the fact that there's a couple of factors that's slowing that down.

Echo Yinghui He - Maxim Group LLC, Research Division

Okay, I understand. And then lastly, about any plan on divesting Nuomi?

Hui Huang

Echo, this is Hui. I think in the early part of the call, Joe has already shared his view on the long-term outlook for this kind of [ph] group-buying sector, which will remain very bullish. I think for an operation, like Nuomi or any group-buying business, its success really need come to 3 things. First and foremost, very lean, very efficient and almost flawless execution. And secondly, substantial and dedicated investment over mid to long term. And thirdly, between the corporation or partnership or alignment that can help boast [ph] the scale and the reach. I think at this moment, we are open and continuing to explore every and all the avenues that can help Nuomi to achieve its ultimate success.

Operator

Your next question comes from the line of Long Lin from Brean Capital.

Long Lin - Brean Capital LLC, Research Division

Firstly, I just wanted to get management's thoughts on Renren's strategy to position itself in mobile Internet. I think as a smaller player, what's the company's plan to compete with Internet giant players who have also emerged as new leaders on mobile Internet? In addition, we have seen like a number of merging and acquisitions going on between the sector. Just wondering if Renren will complete any acquisition deals for strategic investments or maybe become -- potential [ph] make acquisition target?

Joseph Chen

Okay, so we have mentioned a couple of times about the strategy for Renren that may have sense [indiscernible]. We have concluded that at least with China, the biggest killer app for communication on mobile is messaging, right? So that's why some of our competitors were doing so well in China and some are doing so well in the other part of Asia. So although U.S. has not yet followed the same -- the trend to the same degree, but I think it's going to happen inevitably, maybe slower. Europe is already happening. So for a social networking company, where the products being laid [ph] is primarily PC. For example, when the a user registered for Renren, we use to require them putting an email address. And that's a very, very PC-centric approach, right. So we have to change. So basically starting from a year ago and, most recently, 2 quarters ago, we started to move to messaging very aggressively. Our latest upgrade on Renren, feature messaging as well as group messaging and/or feature upgrades that will also further enhance our interactivities on the groups. We think that those improvement and innovation will help our user base to become more sticky, as well as expanding our user base. So we think we're on the right track. And the strategy [ph] right now, it's 80% mobile, 20% PC. And I think that maybe after a few quarters of that innovation, it will become maturity basically on mobile product D&A [ph]. And we're looking for new growth on mobile, because the past few years where growth in mobile has primarily happened because the user migrated from PC to mobile. But now for the next stage of development for the company, we're looking for pure growth coming from mobile, because it's already 80% of our traffic and if we're going to grow, it has to grow from mobile. And that requires us to fine-tune product D&A [ph] to a much, much more mobile-centric approach. And for others who cover this industry, you know very well the -- for that part of the market, China is probably the most competitive. So we have tough job to do, but we're not afraid. We have to keep on innovating based on the strength of our user base. For your second part of the question. So basically we -- there's no active thought process going through these big deals. But basically, we -- when good deal coming by, we know. So that's what our philosophy. We're not looking for something to happen aggressively, but if something really good flying up on your head, we'll take it.

Operator

Your next question comes from the line of Chao Wang from Merrill Lynch.

Chao Wang - BofA Merrill Lynch, Research Division

The question is regarding Renren Woxiu. So what's the revenue potential of this business in the coming quarters? And how do you plan to compete with the leading players such as Huawei and [indiscernible]?

Jian Liu

Charles, this is James. Thanks for the question. Woxiu has -- we have seen some encouraging growth for Woxiu business in the past 1 or 2 quarters. 56, as you guys probably are aware of, has a tremendous amount of traffic. According to some third-party research houses, we have over 100 million monthly active users. How to leverage on this huge user and monetize this traffic is something we always think about. Advertising is clearly one of the options, which we have been executing over the past couple of quarters. Woxiu is the -- is the other very natural extension because it leverages on user self-created music content and serving exactly the same kind of user base. Last quarter, Woxiu contributed about $3.5 million total user revenue. And we believe this business -- we are doing everything we can to explore further promotion of this service on 56. To your question, competitioning is intensive, but the space, again, is tremendous. It's still in early stages, so we continue to promote the service on 56.

Operator

Your next question comes from the line of Jiong Shao from GL [ph].

Jose Pun - Macquarie Research

This is Jose Pun. I'm calling on behalf of Jiong Shao. I wanted to have a little more color on your mobile ad exchange network, like can you give us some metrics like how many advertisers you get right now and also like how many apps you have inside the network? And also, can you comment a bit on the competitive landscape? I have a follow-up question.

Jian Liu

Yes, thanks for your question. Ader, we have been developing and nurturing Ader in the past 3 to 4 quarters. While we have seen tremendous growth of this platform, it is still in relatively early stage. So we don't release specific metrics on this platform and business like this until a more mature stage. But having said that, Ader has established, over the past quarters, itself as a leader on iOS platform. It's already one of the top advertising exchange platforms. We think this is a strategic piece of asset for us because, as Joe said earlier, the gaming was largely 3 sort of components. There's gaming development, there's gaming distribution and there's gaming operation. So this is a critically important piece related to distribution. Who owns the distribution network, actually, really owns a large chunk of the potential profitability of this business. The other thing that's advertising that way gives us is unique insights we can gain to -- by promoting games, our own games as well as third-party games on this platform. So we will continue to invest into this platform. So far, we have promoted our own games on this platform and we are starting to introduce third-party games into this platform. And we are also in the next few quarters, we're also bringing this platform onto Android. So once that happens, I guess, to a more mature stage, we hope to report more specific details on this platform to you guys.

Jose Pun - Macquarie Research

Also, like, one question on the mobile side on the mobile gaming side. I wonder like how many staff, like, or engineers, do you guys have right now on the mobile gaming? And also, given the intense competition in this area, like, what is the key advantage that you guys think you have besides the social -- the huge user base on the social network that you have?

Jian Liu

So for all of our -- for almost all of our games, they are cross-platform in nature. So not only do we have mobile, but we also have the PC side of the games and we support apps, too. For the total R&D staff combined, we're talking about 500 in the gaming business.

Hui Huang

Just to add on correctly, those Ader team is not only for developing games, they are also working on some other initiatives such as Ader's exchange network, the technical part of it. And also for example, big data analytics. And so all those initiatives are carried out in addition to the online [ph] gaming development around the team.

Joseph Chen

So a quick add-on to that, [indiscernible], basically, I think, one of the advantage that we have in the mobile gaming effect is in addition to the -- extensive web gaming experience that we have, I think it's -- I guess we -- among relatively large gaming companies, we're devoting a much larger share of resources to mobile gaming development, which, as I said earlier, for the next lag [ph] of success on the development side of the business, a much larger research budgets needs to be allocated upfront. So for the amount of R&D that we're spending on the gaming side in the future, I think that if we are on the right track of development, they should translate into pretty good businesses going forward. So I think the advantage being that we're able to invest very heavily R&D in order to develop the small and big [ph] companies.

Jose Pun - Macquarie Research

So I'm not sure if I hear clearly the story [ph], like, you guys said that you will also launch some, like, relatively more casual kind of games on the mobile side. So I wonder, like, going forward, how the mix between those, like, heavier games and also casual games will be on the mobile side?

Joseph Chen

Yes. So we -- if you look at the history of our gaming business evolving until today, we started out by providing a lot of WAP browser-based games. What we have observed is some of these genres that are working on web browser-based games like RPGs and SLGs, actually translates into mobile games pretty smoothly. So the first bunch of games that we launched are lot of the hit titles that we have in our bag was [indiscernible], it's an SLG plus a little bit of RPG genes [ph]. So we have been -- and we have seen very good monetization from both games. So we continue to launch the SLGs and RPGs and ARPGs that you will see in the next few games we will launch towards the end of Q3 and Q4. But we have also seen user behavior different from PC or mobile in that dramatically more users, much more demographics actually started to play games that used not to be PC user -- typical PC gaming users. And also users, when it comes to user playing patterns, they log back into games more often. And for every logging, they spend less time. And therefore, that translates -- and they're well into more casual games. So we are, in the pipeline, the dozen or so titles that we will launch in the next few quarters, you will see a good number of casual games including [indiscernible] advancing games and so on. But we will experiment with all these different genres as we go.

Operator

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

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

Well, my question is about on your [indiscernible].

Hui Huang

Andy, sorry, we can't hear you very well. It seems to be here in our phone.

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

Sorry, I don't know if this is better. My question is [indiscernible] for social e-commerce have expanded a little bit into incorporating OTO commerce. So just wanted to know about how many products and services do you have in the pipeline to service that extended market?

Joseph Chen

So Andy, I don't get 100% of your question, but let me try to address them. I hear more about group-buying, also OTO market, what's our insight on that?

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

Right. More how new products and services are you launching for those 2 markets?

Joseph Chen

Okay. Andy, so let me try answer some of that. You're going to have to [indiscernible] because I don't get completely what you want to learn. So when I mentioned that earlier on my remarks, group-buying and OTO. number one, I think I talked about group-buying being a much bigger opportunity than in U.S. because of the customer expenditure structure. And also, I talked about OTO being much larger umbrella that encompass group-buying. But basically, the group-buying is the monetization piece of the OTO picture. But OTO is really about the IT realization of small and medium enterprises, local services. But basically, this part of the business do not adequately participate in IT revolution. So they were not using a lot of computing devices. They're not using that software. They're not taking advantage of the Internet as much as the some of the big enterprise. But with mobile and group-buying, now they're all going to move into that revolution massively [ph]. So the OTO sector I think is still growing, but that the way I look at it is basically they're going to have, especially with the gaming, right, you've got to have the monetization piece. You've got to have the sales force going door to door to get the money to the -- into the pocket. And then, on the other staff, we wanted to deliver those services over the craft [ph], over the cloud. And you're going to need a lead gen powerful lead gen services, such as the map, to get this traffic into the right deal. So this is -- and also, on the [indiscernible], the infrastructure side, you're going to have people looking on the physical IT infrastructure and Internet infrastructure for these SME customers to better benefit Internet. And better tap into the capabilities of aggregated consumer-buying power. So you turn up on like [ph] easily 4 or 5 layers of OTO, and -- but I think that the group-buying is the most important piece of that.

Operator

Ladies and gentlemen, I would now like to hand the conference over -- back to today's speakers. Thank you. Please go ahead.

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. Thank you.

Hui Huang

Thank you.

Operator

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

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Renren (RENN): Q2 EPS of -$0.03 beats by $0.04. Revenue of $49.6M (+10.7% Y/Y) misses by $5.5M. 8.9M shares repurchased. Q3 revenue guidance of $47M-$49M (-3% to -7% Y/Y), well below $64.6M consensus. Shares -11% AH. (PR)