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Changyou.com Limited (NASDAQ:CYOU)

Q1 2014 Earnings Call

April 28, 2014 7:00 AM ET

Executives

Angie Chang – Head, IR

Alex Ho – CFO and Principal Accounting Officer

Analysts

Alicia Yap – Barclays Capital

Nick Ning – 86 Research

Wendy Huang – Standard Chartered Bank

Fei Fang – Goldman Sachs

George Meng – Macquarie Research.

Eddie Leung – Bank of America Merrill Lynch

Alex Yao – JPMorgan

Operator

Thank you for standing by, and welcome to the First Quarter 2014 Changyou.com Limited Earnings Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. (Operator Instructions) I must advise you that this conference is being recorded today, April, the 28th 2014. I would now like to hand the conference over to your first speaker today, Ms. Angie Chang, Head of Investor Relations. Ms. Chang, please go ahead.

Angie Chang

Thank you operator. On the call today are Mr. Tao Wang, CEO; Mr. Dewen Chen, President; Mr. Xiaojian Hong, COO; and Ms. Wendy Pan, CIO. Ms. Erin Sheng, Interim CFO. I will lead off by providing business highlights on behalf of Mr. Wang, and then pass the call to Ms. Erin Sheng, Interim CFO, who will discuss financial results for the quarter just ended. After the prepared remarks, she will be joined by the other officers to answer questions.

Before we continue, please allow me to read you Changyou's Safe Harbor statement. Statements that are not historical facts, including statements about the company's beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties please refer to the company’s filings with the Securities and Exchange Commission including its registration statements and most recent Annual Report on Form 20-F.

Now, let me proceed to provide business highlights for the quarter just ended. In the first quarter, Changyou’s core businesses online games and online advertising continued to deliver top-line results in line with our expectations.

TLBB Wartune and DDTank continue to be among the most popular online games in China within the respective game types and categories. New web and mobile games launched in the first quarter received a positive initial response from players. And we made good progress in our longer-term platform initiatives growing users traffic on the 17173 website as well as the user base of our various software applications.

Let me now discuss each of our businesses in detail. First, on MMO games, our flagship title TLBB is in its seventh year of operation and continues to be one of the most popular MMO games in China.

In the first quarter, the game attracted a similar level of users as in the previous quarter. Players stayed engaged with the context of the prior expansion path while revenues of the game decreased due to players spending less on the game in the first quarter as they waited for the release of a new expansion pack in April.

On April 25, we released the new expansion pack known as (Foreign Language – Chinese) a refined poker game play, the cross server battle system and added new maps and plots to refresh the content and adjusted to the level of difficulties and the per user session time of each crossover battle.

The game now better assist the needs and playing habits of today’s players. The new expansion pack also added different clang words to choose from so that players may make selection based on their playing level, skill and interest.

In order to keep players engaged and excited about TLBB, in late May, we will organize national tournament, which is an annual event followed by another expansion pack in July and a major annual expansion pack in the fourth quarter of this year. The regular updates of the game, we aim to further increase user stickiness, promote user loyalty, reinforce its popularity and expand the life cycle of TLBB.

Second, let’s take a look at our web games. DDTank continues to be popular and it’s the longest running major web game in China today. While the game is in a relatively mature phase, in the first quarter, we saw a seasonal increase in the game’s user numbers and user access in China during the lunar New Year Holiday.

On April 9, we released the new version, DDTank 3 that added new riding animals for characters and other special items that led players to spend more in the game. In May, we aim to boost user engagement by organizing DDTank’s first national tournament. We expect DDTank 3 and the tournament to attract new and returning players to the game.

After Wartunes, we released Wartune 2, a new version of the game in December and saw an increase in active users following its launch. However, the launch of Shadow Sword, a new self-developed web game that has graphics and game plays similar to War Tune in February affected Wartune’s performance in China.

Both user activity and revenues of Wartune declined. In order to lessen the impact of the new game on Wartune and to boost player loyalty and player engagement in the game, over the next several months, we will be releasing a series of game updates for Wartune. These will introduce new game plays and systems including new machines and systems for training apprentices and building homes.

Our new game Shadow Sword will be rolled on more websites in the coming months. Currently, it is available on 29 social networking sites and game portals in China.

Third, moving over to mobile games. We are continuing to invest in and acquire experience in mobile game development and operation. At this stage, we are building capacity and looking for growth opportunities. We have R&D centers set up in five major cities with a total of nearly 1000 game engineers working on self-development, co-development and licensing of new mobile games.

We are applying what we learned from offering the games we have launched in order to improve our internal development process and quality control standards for mobile games.

Meanwhile, on the licensing front, we have obtained exclusive rights to a number of high-quality mobile games from developers in China, Korea, and the U.S. One of the games Max Axe was launched in February and has been widely downloaded in the U.S. and China. The game is a casual action game. It was selected by Apple’s iTunes AppStore in the U.S. as its featured app of the week in February.

While we do not expect much revenue from a casual game such as this one, the experienced games from marketing and offering Max Axe will better prepare us for the launch of more hardcore games in the future.

Over the next three quarters, we plan to launch three new MMO games, three to four web games and 10 to 15 mobile games. The three MMO games in the pipeline for our Fantasy Frontier Online, Asta and Echo Of Soul.

All are 3D fantasy MMORPG’s license from abroad. We plan to launch Fantasy Frontier Online in the first quarter of this year and Echo of Soul and Asta in the fourth quarter of this year. Web games in the pipeline include, Deity's Crown, a self-developed 2D site scrolling web game that combines running and multi-online battle arena per game play. We plan to launch this game in the third quarter.

TK, a self-developed tank battle web game that we plan to launch in the fourth quarter and a self-developed martial arts role playing game that we also plan to launch in the fourth quarter.

On mobile games, we plan to launch a new co-developed game DDTank Mobile Version in China in June. We are also carrying out testing of newly licensed games and self-developed games. These mobile games are set to come online this year once testing is complete.

Fourth, on our platform initiatives, we saw good user traffic growth on the 17173 website and in our various software applications. Our step-up of investments in the marketing of our software applications has paid off.

Total average monthly active accounts of our platform channels reached 239 million, an increase of 60% quarter-over-quarter and a 182% year-over-year. A number of significant developments led to these strong results. On the Content side, we sharply increased the number and quality of the video content on the 17173 website.

Following the launch of a software application for video recording and uploading in November of last year, in January we introduced exclusive live broadcast of global e-sports events in China.

We also published featured reports on popular games such as the featured report on the New Heroes of Legal Legends.

These new contents attracted a large number of gamers increasing the number of unique visitors on the 17173 website. On our software applications for PCs, monthly active users of the 17173 browser more than doubled in the first quarter.

According to our own data tracking and estimates, the 17173 browser is now the number one game browser in China in terms of average daily active users. In the second quarter, we will work to enhance the browser’s game-related functions and promote the application in order to develop a wider audience.

Third, on our software applications for mobile, in the first quarter, we updated and released new content for mobile apps including 17173 mobile and game shows. We saw a notable increase in monthly active users for these and other mobile apps in the first quarter.

In March, mobile users accounted for roughly 16% of the total monthly active accounts of our platform channels. In order to reach our goal of building an integrated gaming platform to serve the various needs of today’s gamers. For the rest of the year, we will invest aggressively in the platform business to develop and promote our products.

In conclusion, we believe we are moving in the right direction with our user-driven strategy and to create new products and build the gaming platform that will allow us to capture market opportunities, drive ahead and create value both for our users and for shareholders.

This completes Tao's prepared remarks. Now let me turn the call over to our Interim CFO, Ms. Erin Sheng to walk you through the operational and financial highlights for the quarter.

Erin Sheng

Thank you, Angie. Hello everyone. I will now take you through our operations results for the first quarter.

Total average monthly active account of our games were 28 million, an increase of 12% quarter-over-quarter and a decrease of 26% year-over-year. The quarter-over-quarter increase was mainly driven by an increase in active accounts due to the launch of a new mobile game and a web game in the first quarter of 2014, which was partially offset by a decrease in active accounts of Wartune in China.

The year-over-year decrease was mainly driven by a decline in active accounts of TLBB after the company closed certain game accounts in 2013 to enhance the balance of in game economic system. A decline in active accounts of DDTank as the game have entered into a relatively mature phase and a decline in active accounts of logging in Changyou.

Total average monthly active accounts of our platform channel were 239 million, an increase of 60% quarter-over-quarter and 182% year-over-year. The quarter-over-quarter and year-over-year increases were mainly due to an increase in the monthly unique visitors to the 17173 website after more video content and live broadcasting of e-sports events was introduced to the website.

A increase in the monthly unique visitors to the software page of 17173 browser and an increase in monthly logging accounts of various software applications, both for the PCs and mobile devices due to the heavy promotions carried out for these applications during the first quarter of 2014.

Let me move to discuss our financial results for the first quarter. One, total revenues were $180.8 million, down 7% quarter-over-quarter and up 2% year-over-year exceeding our guidance by $0.8 million.

Online game revenue were $163.4 million, down 5% quarter-over-quarter and 2% year-over-year, in line with our guidance. The quarter-over-quarter decrease was mainly due to decreased revenues from TLBB in China as we did not released an expansion pack in the first quarter of 2014, whereas we did released one in the fourth quarter of 2013 and decreased the revenues from Wartune in China. The year-over-year decrease was mainly due to decreased revenue from Wartune in China, and decreased revenue from DDTank

Online advertising revenues were $9.2 million down 45% quarter-over-quarter and up 39% year-over-year exceeded our guidance by $0.2 million. The quarter-over-quarter decrease was mainly due to a seasonal slowdown in advertising typical of the first quarter. The year-over-year increase was mainly due to an increase in advertising rates of the 17173 website during 2013.

Internet value-added services revenues were $3.6 million up 149% quarter-over-quarter and 150% year-over-year. The quarter-over-quarter and year-over-year increases were mainly due to the consolidation of the financials of the RaidCall Business into Changyou's financial statements commencing December 31, 2013.

Other revenues, which consist of cinema advertising revenues were $4.6 million, down 2% quarter-over-quarter and up 118% year-over-year. The quarter-over-quarter decrease was mainly due to a seasonal slowdown in advertising typical of the first quarter. The year-over-year increase was mainly due to increased advertising sales in the first quarter of 2014 due to improvements in the sales function.

Now, let me provide some more details about our financials. From now on, most of the figures discussed will be non-GAAP. As a reminder, you can find a reconciliation of these non-GAAP measures in our official earnings release.

Two, gross margins, Non-GAAP gross margin was 78% compared with 82% in last quarter and 83% in the same period last year.

Three, operating expenses were $171.3 million, 32% higher than the last quarter and 275% higher than the same period last year. Both the quarter-over-quarter and year-over-year increases were mainly due to an increase salary and benefits expense and higher advertising costs for the promotion of software applications for PCs and the mobile devices of the platform business.

Four, operating loss Non-GAAP operating loss was $29.7 million. This compares with non-GAAP operating profit of US$29.5 million in last quarter and US$101.8 million in the same period last year.

Five, Income tax expense, as our main operating entity in China was approved as a "2013 and 2014 Key National Software Enterprise," the company is subject to a preferential corporate income tax rate of 10% in 2013 and 2014.

We recorded an income tax benefit of $2.7 million before the company recognized deferred tax assets for the net loss carry-forward in the first quarter of 2014.

Six, net loss. Non-GAAP net loss attributable to Changyou.com Limited was $19.2 million in line with our guidance. This equates to $0.36 per ADS on a fully diluted basis. We recorded a non-GAAP net loss attributable to Changyou.com Limited due to fair operating expenses in the first quarter for reasons explained earlier.

Next, moving on to the balance sheet and cash flow statements. As of March 31, 2014, we had a combined balance of cash and cash equivalents and short-term investments of $409.5 million, down from $551.3 million at the end of the fourth quarter of 2013.

The decrease is mainly due to the repayment of bank loan of $153.3 million in the first quarter of 2014. As of March 31, 2014, we had short-term bank loans of $257 million and current and non-current restricted time deposits of $372.1 million, compared with short-term bank loans of $410.3 million and current and non-current restricted time deposit of $424.7 million at the end of the fourth quarter of 2013. For the first quarter, we had operating cash outflow of about $15.7 million.

Finally, our outlook for the second quarter of 2014 is as follows: We expect: one, total revenues to be between $182 million and $199 million, of which online game revenues are expected to be between $161 million and $166 million. Online advertising revenues are expected to be between $14 million and $15 million.

Two, non-GAAP net loss attributable to Changyou.com Limited to be between $14 million and $20 million. We expect that non-GAAP net loss attributable to Changyou.com Limited mainly because we plan to continue with our marketing campaign and software applications in our platform initiatives.

Three, non-GAAP fully diluted loss per ADS attributable to Changyou.com Limited between $0.26 and $0.38.

Four, assuming no new grounds of share-based awards we estimate share-based compensation expenses between $0.5 million and $1 million, increasing our fully diluted loss per ADS attributable to Changyou.com Limited in the U.S. GAAP by $0.01 to $0.02.

Our online game and online advertising businesses are throwing up a cash flow that allow us to take with future-oriented decision on capital spending. We appreciate the support of our shareholders as we invest in new opportunities to expand our business. In the long-term, we believe that you will appreciate our foresight and the strategic analysis of how fast to position Changyou in the evolving and online game markets in China and internationally.

This concludes our prepared remarks. Thank you for joining the call today. Operator, we would now like to open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you very much, ma’am. We will now begin the question and answer session. (Operator Instructions) Your first question comes from Alicia Yap from Barclays. Your line is open. Please go ahead.

Alicia Yap – Barclays Capital

Hi, good evening everyone and thanks for taking my questions. So my questions is on the overall margin trends and also kind of the aggressive sales and marketing strategies for the rest of this year and how should we think about it for the next two quarters and also into 2015 and when can we start to see the return of a profitable quarter?

[Foreign Language – Chinese]

[Interpreted]

Hi, Alicia, for the margins, for the next few quarters, we look at this way, we look at the top-line. For the second quarter, we think, potential growth of the revenues and for the whole year, we do expect revenues to increase year-over-year.

Therefore spending-wise, we have been – for our marketing campaigns for the recent two quarters as we think that may increased in the fourth quarter last year for 50% and 60% in the first quarter.

So, when we continue to spend on to investing in the marketing campaign for the rest of the year. So that is basically how we look at this year. And as we do have some games to launch in the second half of the year and the revenues will start to kick in next year, which will make the top-line for next year, we expect we will have increase. Thank you.

Generate any revenue from that business, on 17173? Thank you

Alicia Yap – Barclays Capital

Thank you.

Operator

Your next question is from (Inaudible) from Credit Suisse. Please go ahead.

Unidentified Analyst

Hi, good evening, thanks for taking my question and I have few questions. First, what at the top, your top game of popular platform-related products and with respect to MAUs and also for MAU, platform-related MAU, does that excludes the other users, the different platform-related products. And my second question is about the game ball business, so did you guys generate any revenue from that business from 17173? Thank you.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Can you repeat your second question?

Unidentified Analyst

Did you guys generate any revenue from the live game broadcasting service on 17173?

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Our MAU for platform channel is most of the MAUs is contributed by the 17173 platforms.

[Foreign Language – Chinese]

[Interpreted]

And also, the increase in the monthly unique visitor of our – at the start up page of the 17173 browser as well as for some of our other software applications is also very rapid.

[Foreign Language – Chinese]

[Interpreted]

And of the applications and also the website we just mentioned are the focus of our promotional efforts and as for the 17173 video content and video business, it is – we are- it’s still in the promotional stage and still at the moment we are not generating much revenues from this section.

[Foreign Language – Chinese]

[Interpreted]

So, on the calculation method of our monthly active users we do not exclude overlapping users, particularly for example for the 17173 browser as well as some of the software applications.

We are not able to track whether they are the same users and therefore we do not exclude overlapping users and only for a very small applications, some like, mobile applications that we have like game Joe as well as 17173, and some other smaller apps where we can track users, then we will pick out the overlapping users. Thank you

Unidentified Analyst

Thank you.

Operator

The next question comes from Nick Ning from 86 Research. Your line is open. Please go ahead.

Nick Ning – 86 Research

Okay, thanks for taking my question. So, I just have this wonderful app on the sales and marketing class, roughly speaking our total monthly budget, how much of that we spend in China versus overseas and the split between PC and mobile?

And also could you disclose how much of your active users right now are on mobile of this 239 million and use well on the platform and our games?

Angie Chang

Okay.

[Foreign Language – Chinese]

[Interpreted]

Right now, our mobile app users account for roughly 16% of the total MAU of our platform channels.

[Foreign Language – Chinese]

[Interpreted]

And regarding your initial question about the breakdown of our marketing expenditure, at this moment, we are not inclined to disclose further information about our marketing spending and how it’s split. And also because there is lots of adjustments that we are making every quarter to the marketing spending and where we spend that marketing.

[Foreign Language – Chinese]

[Interpreted]

So, and the spending that we put, it depends largely on the new versions that we are pushing out for our various applications as well as the website. So, for example, in the second quarter, we are going to be promoting a bit more on the media software and website of the 17173 business. Thank you.

Operator

Your next question comes from Wendy Huang from Standard Chartered Bank. Your line is open. Please go ahead.

Wendy Huang – Standard Chartered Bank

Thank you. Firstly, you just mentioned that you still expect a revenue growth for the fiscal year 2014. So I wonder, given those expansion pack that you just mentioned in your prepared remarks, what kind of growth should we are looking to for your MMO and back in this year? And also, can you give us some update on the investment side of the sales and marketing budget for the full year? Thank you.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Yes, for the overall online games business, we are – it’s very solid and for TLBB, we are expecting a – also growth this year. It will – and the performance of TLBB is very solid.

[Foreign Language – Chinese]

[Interpreted]

However for Wartune and DDTank, it has been on the market for sometime and it’s already entering into a relatively mature phase.

[Foreign Language – Chinese]

[Interpreted]

So, the decrease in revenues from DDTank and Wartune has resulted – has lowered the increase in revenues that we have – on the overall business.

[Foreign Language – Chinese]

[Interpreted]

And in terms of the promotional expenditure we are spending on our games business, it will be more or less in line with last year. We will carefully calculate and look at the return on investment of our marketing dollars when making our decision about marketing expenditures.

[Foreign Language – Chinese]

[Interpreted]

And we will also be spending more marketing dollars on our MMO games for this year in the second half and however, for most of the MMO games, those are licensed games and so, we do not have a very detailed understanding of the exact timing of those marketing expenditures. Thank you.

Wendy Huang – Standard Chartered Bank

Thanks.

Operator

The next question comes from Fei Fang from Goldman Sachs. Your line is open. Please go ahead.

Fei Fang – Goldman Sachs

Hi, thanks for taking my question. I want to follow-up on the cost side, you mentioned that you have 1000 mobile engineers which is a pretty significant headcount scale. So, are you seeking to add more headcount in the coming quarters? And also what would be the product lines that your mobile teams will be focusing on? Thank you.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

On our mobile games, we expect that we will relatively maintain at the 1000 engineering – number of engineers level. And however if for our mobile games, we see a good revenue earning potential from those games and good revenues from those games, then we may consider increasing the headcount. However at this point in time, we do not have any consideration on this part.

Fei Fang – Goldman Sachs

Thank you.

Operator

The next question comes from George Meng from Macquarie. Your line is open. Please go ahead.

George Meng – Macquarie Research.

Hey, can you hear me guys? Thank you very much for taking my question. I have two questions related to your platform strategy. So one – the first one on the 17173 because it’s a leading game portal.

Now we see some of your competitors are actually acquiring some of the game-related media quite aggressively. So, do you see increased competition and also we saw some mobile games specific game media recently, do you also see a competition from that front?

And the relating question is, I think you mentioned that this year will a investment year for the mobile – or for the game platform. So next year, we should see some revenue from that. Do you have any update in terms of the revenue, in terms of the nature of those revenue? And also, what kind of revenue visibility do you have into next year and I have a follow-up question. Thanks.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

On the game media front or for – on the PC, that competition has essentially closed in the – sometime ago and so, I think any actions that our competitors are taking will not have a material impact on our business.

[Foreign Language – Chinese]

[Interpreted]

And for most of the media, game media related to mobile games, right now lot of them, the daily active users of those are very low.

[Foreign Language – Chinese]

[Interpreted]

And for a lot of these third-party mobile game media, they are focused not only on news, but actually more on video content. And so, we are also doing various – putting out various applications for video as well as launching video on the 17173 website.

[Foreign Language – Chinese]

[Interpreted]

We will definitely have to be the number one media on the mobile site.

[Foreign Language – Chinese]

[Interpreted]

No matter how much we spend. Thank you.

George Meng – Macquarie Research.

I am sorry, I have a follow-up on the revenue and also I have a follow-up question, sorry.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

On the revenue side, on the PC, we expect the online advertising revenues to grow by roughly 20% year-over-year. On the IVAS revenue side, right now we don’t expect much growth because, currently we are focused on growing our platform and growing the user base. And so, we don’t want to put too much pressure on our team at this moment on the revenues.

George Meng – Macquarie Research.

Okay, thanks and my second question is related to your overseas strategy. I noticed that your Mobogenie has been launched for – like two quarters now. Can you give us some update on that? And is that going to be a important part for your mobile – overseas platform strategy? Thanks.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Mobogenie is a game – is an application that we launched. It’s one of the many software applications that we have, and it was launched last year and it’s considered a new testing ground for us in the overseas market.

[Foreign Language – Chinese]

[Interpreted]

And in fact our overseas business we began back in 2010 and we’ve been doing launching games and also so far the web games is performing the best and we will continue to do various initiatives and collect more data on the overseas market as well as launch new software applications, so that we could accumulate experience about the overseas market. Thank you.

George Meng – Macquarie Research.

Great, thanks.

Operator

(Operator Instructions) The next question comes from Eddie Leung from Merrill Lynch. Your line is open. Please go ahead.

Eddie Leung – Bank of America Merrill Lynch

Hey, good evening. You guys talk that quite a lot about your organic growth strategy. So just wondering on M&A front, how would you think about the industry potential for consolidation and what type of companies you would think they will be synergy with your business?

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Right now, we are mostly looking at investment and acquisition opportunities of small game teams, development teams.

[Foreign Language – Chinese]

[Interpreted]

But we tend to be very conservative when we are making decisions about game investments.

[Foreign Language – Chinese]

[Interpreted]

So, and we will continue to take a more conservative approach so long as our – the user base of our platform channel does not meet our needs. And right now, we feel that the user base is still large enough. So that we could increase and make sure every game that we launch is successful.

Right now, it still depends largely on us launching very high quality games and this puts a lot of demand on the quality of every game that we put out. So, we will continue to work on growing the user base of our platform.

[Foreign Language – Chinese]

[Interpreted]

We may also consider taking an investment position in some software applications. So that we could carry out cross-promotion within the various applications. Thank you.

Eddie Leung – Bank of America Merrill Lynch

That makes sense. Thanks.

Operator

The next question comes from Alex Yao from JPMorgan. Your line is open. Please go ahead.

Alex Yao – JPMorgan

Hi, good evening everyone. Thank you for taking my question. Just a very quick follow-up question on the spending side. So obviously, the sales and marketing improved quite significantly on quarter-over-quarter and year-over-year basis.

Can you give us a little more clarity into there, are you sending the sales and marketing budget? The volume channel such as – those are volume channel to directly gain number of downloads or is it more of offline brand marketing to show user continuous recognition of our product, any color will be appreciated. Thank you.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

It’s a bit hard to generate as we have a very comprehensive or a variety of software applications. But, we do, do some brand marketing for some of the applications, but that’s consists of really small portion of our marketing expenditure. Most of our marketing expenditures is still spent on acquiring downloads.

For example, a lot of the popular methods of promoting or getting user traffic in China, such as working with various distribution channels as well as using that ad networks are all options and methods that we use. Thank you.

Alex Yao – JPMorgan

Just a one quick follow-up question. What percentage of your self-monitoring fees in domestic market and what percentage is in your overseas market? Thank you.

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Right now we do not have any plans to disclose about a breakdown or disclose information about whether we spending our marketing dollars in China or overseas. As you know, it’s a very competitive market in the Internet industry. And so we don’t have to feel that it’s an appropriate metric for us to disclose at this moment and we appreciate your understanding. Thank you.

Operator

Your next question comes from Wendy Huang from Standard Chartered Bank. Your line is open. Please go ahead.

Wendy Huang – Standard Chartered Bank

Thank you. I have two more questions. One is about your web game operation. You mentioned in the prepared remarks that one of the reason for the volumes declined is due to another new game you launched in February.

So, going forward, how can you actually avoid this kind of cannibalization issues with your own games? And my second question is about your game platform strategy, so currently, you are very aggressively pushing several mobile apps such as the game news app, video app and the live broadcasting features as fixture.

But in China, how many of those internet users will actually in short, say 5 to 10 apps just for game purpose. Imagine that they actually still need to put a lot of other apps like the travel app, messenger app in the smartphone. So when you are actually deciding this kind of strategy to operate a game platform, what actually prevents you to kind of a long-term comprehensive game apps, so you can focus all your resources in just pushing one app to kind nurture this kind of game platform. Thank you

Angie Chang

[Foreign Language – Chinese]

[Interpreted]

Regarding the situation Shadow Sword that Shadow Sword is what the new game initially we developed for a – one a particular web game operator and was designed to be launched on just that one platform within a closed part of it.

[Foreign Language – Chinese]

[Interpreted]

And in terms of – for Wartune, actually, since it’s the highest – in terms of the number of new user additions into the game Wartune, that has been declining and over a period of time and so it will actually be new in creating the Shadow Sword and the growth for Shadow Sword actually does not have that big of an impact on Wartune.

[Foreign Language – Chinese]

[Interpreted]

So, in this case, we feel that this is a special case and going forward, we will try to develop games that are targeted with a variety of users and also with a variety of different game plays and styles to grow our user base and our presence in web games in China. Thank you.

[Foreign Language – Chinese]

[Interpreted]

Okay, in terms of – on the mobile, we are launching and promoting a variety of softwares as well as mobile applications.

[Foreign Language – Chinese]

[Interpreted]

Right now, our strategy is to launch a different app surrounding the various needs of our gamers and launching various applications for this.

[Foreign Language – Chinese]

[Interpreted]

And so we see that for a few of our applications where there larger user base, then we will start to combining and integrating various functions within those applications that have a larger user base. Thank you.

Operator

At this time for closing remarks, I would like to hand the call back to Angie Chang for closing remarks. Please go ahead, miss.

Angie Chang

Once again, I would like to thank you for joining today’s call. If you have follow-up questions, please contact us. Thank you.

Operator

And that does conclude today’s conference. Thank you for your participation. You may now disconnect.

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