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Renren Inc. (NYSE:RENN)

Q4 2013 Earnings Conference Call

March 18, 2014 9:00 p.m. ET

Executives

Sam Lawn – IR Director

Joe Chen – Chairman and CEO

James Liu – COO

Hui Huang – CFO

Analysts

Cynthia Meng – Jefferies

George Meng – Macquarie

Eddie Leung – Bank of America-Merrill Lynch

Alicia Yap - Barclays Capital

Muzhi Li – Citigroup

Timothy Chan – Morgan Stanley

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Renren Incorporated 2013 Fourth Quarter Earnings Conference Call.

[Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 19th of March, 2014.

I would now like to hand the conference over to your host today, Mr. Sam Lawn. Thank you. Please go ahead.

Sam Lawn

Thank you, and welcome to our fourth quarter and fiscal year 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 fourth quarter and fiscal year 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 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.

Joe Chen

Thank you, Sam. Good morning, good evening everyone. 2013 was an important transforming year for Renren. We have repositioned Renren to be a real name mobile social network, with communication services focusing on our core user base of college students and the young generation. We have restructured our organization [ph] to be much leaner and more nimble. In addition, we also publicly divested Nuomi for social commerce operations in order to concentrate our resources on building the long-term value of our social networking foundation.

With the wide adoption of smartphones, communication has become a key application on mobile in the form of social messaging. The acquisition of WhatsApp by Facebook last month illustrates the substantial value placed on social messaging and the trend that's happening globally.

In our own market, we understand that we're up against a formidable market leader, with dominant and growing market share in social messaging. Nonetheless, we're continuously trying to discover opportunities that best leverages our expertise, differentiating ourselves from competitors, and look to carve out our share of the market in China's social space.

In the past seven years since Renren first began, we have faced and survived strong competitive stress in every single year. Our response to the latest challenges has been to combine the core strength of social networking and social messaging features and to build on our strong brand equity on college campuses.

We launched our new social messaging services last quarter and [indiscernible] user demographic, supported by a strong marketing campaign. We understand we need to further differentiate our services and this is just the start to satisfy the evolving basics of our existing mobile user needs. We plan to do a lot more planning and [ph] innovation and selective marketing to further strengthen [ph] in this demographic segment.

A quick update on our advertising business. During the past year, our mobile transition proved to be a challenge for us on the advertising front. With that, we are pleased to report some encouraging momentum in mobile advertising as we recently began commercializing mobile traffic in the fourth quarter.

Mobile advertising revenue now represents roughly 8% of our total brand advertising revenue. While this is exciting news, the path in building a more substantial mobile advertising business will take time. Keep in mind, there are a limited number of players in China that are proactively educating and selling mobile solutions to brand advertisers. It is still in the early stage and we need to continue developing ways to enhance the effectiveness of mobile advertising. Nonetheless, our recent progress gives us the confidence we're on the right track.

In gaming, as mentioned in our last earnings call, we began [indiscernible] in the first half of 2013, but we quickly realized the problems and took swift and determined actions. Now we have a lean and singularly focused gaming operation. Our team is fully dedicated to bring the launch of three successful game titles this year, which would help rejuvenate our mobile gaming prospects. This is a hit driven business and a work in progress that could take more than a few quarters. But we remain positive on the growth potential of our mobile gaming business.

A major milestone in the past year is that we divested Nuomi, which we incubated in-house from startup to an industry leader in only three years. While we believe group buying and the O2O business have tremendous potential in China, we wanted to focus more on our core social networking business. We are pleased that we found a good home for Nuomi, and its integration with Baidu has been progressing really well.

In summary, 2013 was a very important transformation year for us. We began more mobile-centric. We become more focused on our core businesses. And we streamlined our business and organizations. Meanwhile, we managed to continuously grow the net assets on our balance sheet, which will give us a solid foundation for our long-term development.

Looking to 2014, we'll further invest in our core business and cement our strength in China's universities and the young user demographics, which is the market segment we have always served the best. While we expect profitability to remain out of reach for some time longer, we'll continue to build intrinsic value of our business-- of our company assets what will bring long-term sustainable value for our shareholders.

Let me now pass the floor to James for a more detailed review of our various operations.

James Liu

Thank you, Joe. Let me first start off with user metrics, the recent launch of our new social application. With around 80% of our media time on mobile, we're now clearly a mobile-centric business.

Active daily users gained around 6 million, to 206 million users in fourth quarter. However, our monthly user members saw a drop year over year to 45 million. Competition has clearly affected our user growth as mobile user preferences shifted from social networking to social messaging services. User engagement, while dropped slightly, remains at a healthy level, around seven hours per month for the whole quarter.

In November we launched a marketing campaign to reinvigorate our brand among the young generation, which we believe was well-received. Our goal is to reposition Renren as a young generation social hub, the best place to observe and understand the thoughts and behaviors of China's new generation. In the next few quarters we will continue our targeted marketing strategies, while coinciding them with new product features and upgrades.

As Joe mentioned, we are well aware that simply adding social messaging functions to our Renren mobile app will not be enough to differentiate our brand and services. Therefore, our team is currently developing new mobile features that will engage our target users more deeply, which we plan to launch in coming quarters. Our product will be specifically tailored to the needs of university students. And that is the base of our SNS foundation.

In games, we have restructured our teams to reflect a much leaner operation thereby rebooting our gaming business to start fresh into 2014. As Joe mentioned earlier, our platform development will take some time, as we look to only release a few games this year and we feel -- that we feel have the highest chance of success. Introducing high-quality games and further building our licensing channels with third-party developers will be our top priorities.

Let me now turn to 56.com. Average daily upload of user-generated content grew nearly 50% year over year in December, while the average number of daily unique visitor also grew around 28% year over year. Our lean UGC strategy continues to drive traffic at a cost-efficient manner, while also attracting more brand advertising interest to 56 platform. As the competition among larger players for professional content further intensifies, 56.com remains a unique player in China's online video space.

Finally, we have made some very solid progress in the professional social networking space. Over the past two years, we have built a database of high-quality content through our Jingwei business card reader service. We have since introduced social features to encourage our white-collar users to interact, share and connect. At the same time, we have also been developing our campus recruiting business by leveraging Renren's university demographics.

We have now merged the two lines and officially launched our Jingwei professional networking service. We feel that the timing is right as the market for professional networking is now much more ready compared with when we first started it two years ago.

Increasingly, we are seeing companies looking to work with business networking app platforms as recruitment sources. This is further validated by recent entry into the Chinese market by LinkedIn. We believe our early mover advantage and professional networking and our strong base on campuses will help us establish ourselves in China's nascent professional networking sector.

That concludes our operational update. I will now pass the floor to Hui for the financial review.

Hui Huang

Thank you, James. Hello everybody. Let me first note that to better reflect our latest operational status, starting from the fourth quarter of 2013, our financial statements will reflect the deconsolidation of Nuomi's operating results. Retrospective adjustment to the historical statement of operations have also been made to provide a consistent basis of comparison for the financial results. Specifically, Nuomi's operational results have been excluded from the company's financial results from continuing operations and have been separately itemized under discontinued operations.

I will first begin with the financial highlights for the fourth quarter. Our total net revenues for the fourth quarter of 2013 were $30.7 million, representing a 29% decrease year over year.

Now let me walk you through the major revenue components and the trends. First, Renren segment net revenues, which include advertising revenues and IVAS or internet value-added services revenues, were $15.1 million. Online advertising revenues were $10.2 million for the fourth quarter of 2013, representing a decrease of 18% year over year. IVAS revenues were $4.9 million for the fourth quarter of 2013, representing a 4% decrease year over year.

Next, gaming segment net revenues were $15.6 million for the fourth quarter of 2013, a 40% decrease from the same period of last year. The decrease was due to our launched old games reaching mature status and lack of new titles.

Now gross profit. Gross profit in the fourth quarter of 2013 was $13 million, a 50% decrease year over year. As a percentage of total net revenues, gross margin decreased to 42% in the fourth quarter, compared to 60% in the same period of last year, primarily due to the decrease in net revenues.

Operating expenses in the fourth quarter were $55.5 million, a 15% increase year over year. The increase in total operating expenses was mostly due to the increase in marketing expenses for our Renren branding campaign as well as our gaming restructuring expenses which was one-time in nature but occurred in the recording quarter.

Next, loss from operations in the fourth quarter was $42.6 million, compared to a loss of $22.7 million in the corresponding period of 2012. The increase in loss from operations was primarily due to the decrease of gaming revenues and the higher operating expenses in the fourth quarter, as previously explained.

Our net profit in the fourth quarter was $101.5 million, compared to a net loss of $21.1 million in the corresponding period of 2012, which was primarily due to $132.7 million gain from the deconsolidation of our discontinued subsidiaries, primarily Nuomi.

As of December 31, 2013, the company had cash, cash equivalents and short-term investments of approximately $949 million. As we remain dedicated and continue to invest in the long-term value of our business, we are also carefully managing our balance sheet to sustain our strategies.

Now let me briefly run through some key financial figures for fiscal full year 2013. Net revenues in 2013 were $156.7 million, a decrease of 2% year over year. Renren segment net revenues were $71.2 million, of which advertising revenues in 2013 decreased 6% year over year to $50.1 million, and IVAS revenues were $21.1 million, a 27% increase from 2012. Gaming net revenues in 2013 were $85.5 million, representing a 5% year-over-year decrease.

Gross profit was $88 million, a decrease of 7% year over year, with the full year gross margins at 56%. Operating expenses in 2013 were $201.7 million, up 27% year over year, as 2013 continued to be a major investment year for Renren. Loss from operations in 2013 was $113.7 million, compared to an operating loss of $54.2 million in 2012. Net profit in 2013 was $64.4 million, compared to a net loss of $75 million in 2012.

Now let me provide you a quick update on our share buyback program. During the fourth quarter of 2013, the company repurchased approximately 4.9 million ADS shares.

Finally, let me provide you our top-line guidance for the first quarter of 2014. For the first quarter, we currently expect to generate revenues between $23 million to $25 million, representing approximately 40% to 45% year-over-year decline. This forecast reflects our current and preliminary view, which is subject to change.

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

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions]

Your first question comes from the line of Cynthia Meng from Jefferies. Please ask your question.

Cynthia Meng – Jefferies

Thank you. Thank you for giving us the chance. I have just one question. Can management give us some color on the breakdown of first quarter 2014 guidance between games and advertising? And also for any updates on progress of transition to social messaging services. That would be appreciated. Thank you very much.

Hui Huang

Cynthia, this is Hui. I will take the first half of your question on the first quarter guidance. As I just mentioned in our prepared remarks, the total top line for the first quarter of 2014 we'll see probably 40% to 45% decline compared to the first -- the same period of 2013.

As we mentioned in this call and previous call, the largest component of revenues is gaming. And gaming recently went through a substantial restructuring. And we think it will still take some time for the full force of the restructuring [ph] to take place. So as we revamp [ph] that for this quarter, gaming will continue to see fairly reduced revenue in similar magnitude for the total top line of the company.

Joe Chen

Hi, Cynthia. This is Joe. Regarding your second question on transition to social messaging, we launched our latest version last quarter, incorporating people-to-people chat, messaging, as well as group messaging in the app. So in terms of user maturation -- maturity, the users, mobile users already migrated to this latest version or still have some issues, still using a feature phone which accesses Renren through a WAP service, as well as some of the earliest smartphones, especially Android Samsung phones who are actually in partnership with Samsung. Therefore, we cannot upgrade those apps, unless the users change the phone, which we think will happen very rapidly going forward because the cost of the high-quality Android phone is coming down fast. So that's the progress on the migration to social messaging.

And in addition to that, I want to mention that we're focusing our marketing efforts and product efforts to serve the college student and college-bound high school student, as well as young professionals well. So that's always been our core user base. So therefore we -- going forward, we're going to offer differentiated service that's not offered by other general-purpose communication tools.

Cynthia Meng – Jefferies

Thank you.

Operator

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

George Meng – Macquarie

Hey, good morning, you guys. Thank you very much for taking my question. I have a few questions. The first one is regarding your -- the follow-up on the chat app, or basically the chat function incorporated in your Renren app. So I just checked that. I think that you basically incorporated some of those communication functions.

But as you said, just incorporating the -- some communication functions are similar from similar chat apps. It's not enough. So what do you have in planning, details? Maybe, if you can, you can elaborate more on the new functions that you're going to incorporate into this Renren app, to actually enhance the user activeness of your Renren app. That's my first question. Thanks.

Joe Chen

Hi, George. This is Joe. So basically, as we focus on these user demographics, which is not a small one, rough calculation of this demographic in China, demographic, probably would yield -- as well as at the college, most educated part of the Chinese population between age of 16 and 26, you're talking about probably 80 million to 100 million people.

And because we have narrowed our focus on this group, and we're able to offer features that are really tailored to this particular group. And our competitors cannot do that because they are serving a much broader population. So I cannot talk specifically, but that gives you an idea.

Maybe we could, for example, through a mobile open platform, we could promote applications that are designed just for college students or public platform accounts, basically these [indiscernible] information services that also serve college students, allowing them to check their examination source, changing their registration in the class, and finding out what's available in the cafeteria.

There's cafeterias in the college -- what kind of -- what's available? So these services will be provided by third-party members. We will be in a position to distribute those services to the -- our users. So it's going to be a combination of third-party platform efforts, as well as our preinstalled features that serve that user base really well.

George Meng – Macquarie

Okay, got it. And did you have any, you know, steps in terms of like the increased communication activities within your Renren app, after you reinvent the app in the past quarter?

Joe Chen

Yes, certainly. The communication activities certainly increased, per user basis. But as I said -- we said earlier, our position is to offer social networking, which basically covers the content sharing and photo sharing for users, as well as communication services and even the group chat. And that usage has picked up than the early versions. But also, in the meantime, we recognize that the -- our -- the market leaders is increasing the market share as well. So they're trying to penetrate the college market as well. So we need to have a more differentiated service, excellent service level on all the basic services, including communication services.

George Meng – Macquarie

Okay, got it. And then my second question is regarding your mobile advertising. I just want to clarify what you said, that there's about 8% of your ad revenues coming from mobile because I recall you said about 10%, previously. So there is no big change. What do you think of, for example, for 2014 or maybe even beyond? When do you see a major ramp-up in mobile revenue, because mobile is now already 80% of your media time. Yes, that's my second question. Thanks.

Hui Huang

Hey, George, this is Hui. I think that in the previous earnings call, we mentioned that at the time, we were expecting that the mobile advertising in the fourth quarter of 2013 would reach 10% or high single digit. So now the actual result was 8% for the past quarter. So that is the first half of your question.

And regarding the outlook for mobile advertising for the rest of the year, as of this moment, right after the Chinese new year, we are encouraged see accelerated momentum in mobile advertising, our platform. But that said, as Joe mentioned in his earlier remarks today, overall, the absolute slice of mobile advertising budget in China is still quite small compared to traditional advertising.

And also, among all the major internet platforms in China, there are still a very limited number of players who are proactively agitating and promoting mobile advertising solutions for brand advertisers. You know, you probably hear it from other internet names, their mobile revenues is of a higher percentage but bear in mind that a lot of them are e-commerce related in nature or other nature. The pure brand advertising solution through mobile is still quite limited.

So in short, we think we will grow [revenue] this year but given it is still an early stage, we are not in a position to predict with exact accuracy at what pace and what magnitude it will grow. But we remain encouraged by the trends.

George Meng – Macquarie

Okay, great. That is very helpful. Thank you very much.

Operator

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

Eddie Leung – Bank of America-Merrill Lynch

Hey, good morning guys. Just would like to get an update on 56 and Woxiu. Especially when we look at your decline in advertising revenues, was it coming mainly from your social network advertising platform or has there been any decline in your video advertising business as well? Thanks.

Hui Huang

Eddie, regarding the advertising revenue in the fourth quarter, the decline is from social networking platform, i.e. Renren, as you may recall, the last quarter of every year, it's our seasonal weak quarter given a significant part of our brand advertisers are in the fast-moving consumer goods or licensed consumer goods et cetera which tend to have a peak season in the second quarter and third quarter.

And the fourth quarter is winter and so therefore, historically, in every single past four years, fourth quarter, you will always see a decline. So that is firmly attached on the Renren platform. For 56 online video advertising, given the very small business, there is not particular seasonality we observed.

Eddie Leung – Bank of America-Merrill Lynch

Thank you.

Operator

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

Alicia Yap - Barclays Capital

Hi, good morning. Thanks for taking my questions. I have a few questions here. Number one is can management -- we actually wanted to know when should we expect some of these challenges and issues that have been occurring for us for the last few quarters that we are facing, when should we expect that would be -- you know, kind of resolve and maybe expect a potential turnaround of the business and start to see some of the reacceleration of the growth?

Joe Chen

Alicia, this is Joe. Let me try to give you a high-level answer for your question. I think for the Renren SNS platform, the challenge for the past few quarters are number one, migration to mobile and the further migration to social messaging that is both challenging in terms of user growth and in real-time monetization as well. So the eventual turnaround and the eventual profitability of this business depends on whether we could solidify our leadership in the user segment that we will currently focused on, like said, the most educated first half of the users in China between 16 and 26, and slightly up. Right?

So if we are able to have an entrenched position in this highly lucrative user demographics, I think that we will eventually make a lot of money. So that is -- and I think that how long that is going to take, I think given how fast mobile is growing, I think in the most, two years, we should be able to see whether this strategy will come to fruition and success.

And then for the gaming, it has its own cycles, because for social networking we're really competing with a much bigger dominant competitor, and riding [ph] on the mobile. But for gaming the competitive dynamics is less -- it is less -- we don’t have any single launches dominant competitor in that space. So it's really a matter of managing your R&D, game in our pipelines, as well as managing the milking or existing game titles to fund these R&Ds.

And the nature of things that -- these R&Ds, they are hit-driven, so out of 10 R&D projects, maybe one or two become very successful and a few medium successful and most of them fail. So that is the stand for a lot of companies. So you will have to live with that -- the natural, the law of nature and hope that one day, soon, that we are going to have a hit title.

So -- and then, for the digital business, in a really interesting and increasingly valuable niche, which is UGC video. We never participated in gigantic [ph] and nuclear war of buying more expensive content and monetizing them below cost and so we don’t participate in those. I think that is the right strategy for us. We think our cost of capital being very precious because we have a long-term plan. We don't want people have capital without very certain return.

So for UGC, we're going to continue to invest in this strategy. I think that eventually, these are the low cost space, and if you can continue the leadership in that, potentially we can make it and become successful.

So that's -- and on top of that, I think James briefly mentioned that we're white-collar [indiscernible] which we have internally invested and incubated for two to three years now. Now is the first time we bring that in front of the investors and this is the year that we are going to invest very heavily on this. Well, one [indiscernible] China, formally, and secondarily is of course is that we think that for the past few years, this has been a very difficult market for us to penetrate and for everybody, including us.

But I think with the rise of mobile, I think that the connectedness of white collar workers as well as white collar professionals are increasing nowadays, therefore we think that there might be a very good alternative for this type of services to flourish really well in the next couple of years.

Alicia Yap - Barclays Capital

Thank you. And then my second question is you know, also, can you help us understand what would the company be using the cash, for example the cash that we receive from selling Nuomi for? And then in related to the answer that you gave just now, in terms of the gaming, you know, the transitions that we are experiencing, would it be also possible that we can also, you know, look into some potential investing or maybe acquiring some of the existing gaming companies that already have a couple of the good games that is already out -- you know, any comments that you can share would be great. Thank you.

Joe Chen

Yes, I will let James talk about the expansion strategy for the gaming or the more -- just overall speaking, I don’t -- because we already internally have so many promising projects that we know really well, that we've been operating for a long time. I think just continue to invest in these businesses and bring them -- bring out the long-term value is already a handful of job. And so I think I would not rule out the possibility, but I think the likelihood for us to acquire a brand new business and proving [ph] or managing bandwidth on top of that, I think it's not likely. But it's not impossible, but very unlikely.

For gaming, I will say that in addition to internally produced game, from R&D, we think that in this period of time, when there are so many start-ups in the mobile gaming space, it makes a lot of sense to have a very open mind and open checkbook, not the acquired companies but to license the high quality products. Which probably has high return on capital on internally produced games. So if we do a good job licensing.

Alicia Yap - Barclays Capital

I see, and then lastly, just quickly is -- what are some of the major customers that actually advertise on our Renren platform currently? Thank you.

Hui Huang

Alicia, for our top brand advertisers, still the top sectors are the fast-moving consumer goods, FMCG, some IT products, apparels, and then to a lesser degree, financial services and automotive. So FMCG and dairy care products still account for a very substantial portion of our brand advertising business. So the usual brand names in these sectors are our most often customers.

Alicia Yap - Barclays Capital

Okay, great. Thank you.

Hui Huang

Thank you.

Operator

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

Muzhi Li – Citigroup

Hello everyone. Thank you for taking my questions. And it's great to hear the company's management sharing the awesome future potentials. So my question is -- the first question started from the video advertising services. So other than single focus on the UGC content, what would the Company's video platform differentiate from the other leading online video services?

And if from -- thinking from the advertiser's perspective, why would they want to advertise on 56.com versus other video services? That is my first question. Thank you.

James Liu

Muzhi, thanks for the question, this is James. For 56.com, we have clearly, as we mentioned earlier, we are clearly the leader in the user generated video space. In terms of our total UGC videos uploaded on a daily basis, it has gone up more than 50% year-over-year in Q4. So they are faring well in this particular department and this is critically important because video, like everything else, is moving into the times of mobile and we expect the UGC videos to actually really experience substantial -- when it comes to the mobile era, is actually started from this year when every carrier is starting to adopt -- to migrate customers into 4G device, we expect that to lead to higher growth in the UGC, but still a UGC space.

Another aspect that we talked less about 56 in the 56 is that other than UGC, we have also done -- we are also in a leading position with a PGC video, the more professional generated contents. A lot of those videos are programs that we produced. Weibo Jiang-pu [ph], it's a very interesting show with more than 700 million video viewership ever since it was produced last year, this is probably, by far, the number one PGC content amongst all the video cost even though many video cost are now pouring into this space, investing a lot of money and we are still seeing very clear leadership, especially in the particular demographics. So UGC plus PGC clearly differentiates ourselves.

Muzhi Li – Citigroup

Thank you. When you say the leadership in which aspect like the average daily user or time spend or page view, et cetera?

James Liu

Well, yes. So typically, UGC -- the nature of UGC is it's relatively short and in terms of the length of each video, compared with the movies in previous years, so the typical metric that people use to track UGC is actually video viewerships for these videos. So we are leading in terms of video viewership numbers for UGC and PGC figures.

As well as the second one is user uploaded UGCs. That is also critically important measure.

Muzhi Li – Citigroup

Thanks. The next question is about the mobile game. I remember from last year, that the company said that they are going to begin to launch mobile games in the second quarter of 2013 and then get postponed.

So is there any mobile game -- smart devices gain currently under operation at the moment and if not, will it -- since the company has 900 million cash, would the company be thinking about making an question of some leading studios in China rather than develop this in-house?

James Liu

Thanks for the question, Muzhi. So to answer your second part of your question first and then the first one -- Joe just mentioned that there is a ton of studios in the mobile gaming development space right now depending on who you ask, right?

People may tell you there is actually -- well, above 10,000 studios in the mobile gaming development space right now depending on who you ask, right? People may tell you there is actually well above 10,000 studios now working around the country coming up with different titles. Right?

So it does make sense that other than in-house developing games, we also look out to license games from third party vendors which we are starting to do just from this and last month already. So we are travelling around the country and looking for great titles and the right kind of studios to lock in the products, we are also looking at investment opportunities as we speak. Okay?

So the first question, which is mobile game launching in the past year and going forward, today, we have a dozen titles that are in operations that are developed in house and each and every one of them has a mobile version and mobile operation it's actually the focus of our gaming operation. Some of them do have PC web versions that are operating side by side with the mobile version.

But most of them are mobile -- very much mobile centric. We talked about launching new games starting from Q2 last year and new games into the Android platform. Unfortunately, with overextension and too many initiatives launches in the last year, we were stretched too thin which led to the restructure in Q4 of our gaming business.

And many of our games under development were delayed. Some of the titles, we have decided to terminate based on the performance of the games that we have seen in the testing period. Toward the end of last year, we did launch one new game, which is called the Renren Dancing Game which actually fared okay and we are now based on the initial phase of interaction and feedback from the users, we are not polishing it and we are going to launch the second phase of the game within the next two to three months.

We are also working on a number of new titles and we would not launch too many titles as Joe said, we are only going to be focused on high quality titles. So it's going to be backend loaded for this year and we will only launch a few titles from in house. But we do expect to bring in a few titles from third parties through licensing channels.

Muzhi Li – Citigroup

Thank you very much. My last follow up question is -- when the Company launched the new mobile game, especially the new Android game, will the Company do the self promotion, you know, through Renren's website or will the Company put those things into third party channels like 91 Wireless or Qihoo360, you know, this type of third parties, to share revenue with them? Thank you.

James Liu

Yes, thanks for the question. For our game launching, we do both. So especially on Android, those super mega app stores that you talked about, the UCs [ph], 91, the 360s, these are channels that we have worked with in the past like last year, and we will continue to work with these guys into the future.

Renren obviously is a great channel and we are going to see tighter cooperation between Renren and Renren Games this year, and for most of our games, we will launch into Renren as well and probably ahead of other channels.

Muzhi Li – Citigroup

Thanks, that is very insightful.

James Liu

Yes, thank you.

Operator

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

Timothy Chan – Morgan Stanley

Hi, good morning. Thank you very much for taking my questions. I have two questions. Number one would be the advertising formats that you are offering now on mobile. Could you maybe comment more on whether it's a banner based or performance based?

And the reception among the advertisers, how did they think about the ROI on each format? And I have a follow-up question.

Hui Huang

Tim, this is Hui. I will take your first question. At this moment, the majority of advertising -- mobile advertising formats are banners, [indiscernible] banner on the screen, as well as some sponsored stories in the middle of the news feed. In terms of pricing mechanics, it's a combination of CPT basis, but also we see some CPM base as well.

Timothy Chan – Morgan Stanley

Okay, and do you have any views on promoting some third party mobile games within your Renren app? And potentially, do you think the ROI of doing so would be comparable to develop the app store in terms of the mobile game distribution?

James Liu

Tim, this is James. On the Renren app, there is a button, it's called a Discovery button. If you go into there, you will see a game center that is typically where we promote third party games as well as our own games. And when there is new games, you will see a little red dot highlighting this particular button.

Timothy Chan – Morgan Stanley

Okay.

Joe Chen

Let me add on it, is that so far, most of the games that we promote there, social games which -- mobile social games which typically do not have very high ARPU, and we promote those games to increase user stickiness. So at this time, we have not yet promoted any major high ARPU type of games but we expect to start doing that starting from this year.

Timothy Chan – Morgan Stanley

Okay, understood. My second question is more about the web games, for the sector as a whole, what are you seeing right now, is the sector still growing or do you think some structural decline in the web game sector due to the mobile game competition? Thank you.

James Liu

Yes, thanks for the question. For the web team business in general, Renren Games started out in the web gaming business, right? It experienced some substantial growth over the past couple of years. The growth slowed down last year, so the entire industry -- the figure we are looking at actually showed us that even though people are saying mobile really emerging and web games are becoming irrelevant, last year, in 2013, the entire industry still managed to grow between 20% to 30% and so it's still growing.

We are still closely monitoring the trend for this year, you know, it's probably still growing, but clearly, the mobile -- the entire industry is shifting to mobile and mobile is growing way faster than the web and that is why we are also focusing on mobile games.

All of our games started off with mobile primarily and then, by the way, we have the web version.

Timothy Chan – Morgan Stanley

Understood. Thank you very much.

James Liu

Thank you.

Operator

[Operator Instructions]

There are no further questions at this time. I will hand it back to Sam Lawn for the 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, all. Bye-bye.

Operator

Ladies and gentlemen, that does conclude the conference for today, thank you for your participation, you may now disconnect.

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Source: Renren's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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