Sky-mobi's (MOBI) CEO Michael Song on Q2 2014 Results - Earnings Call Transcript

| About: Sky-mobi Limited (MOBI)

Sky-mobi Ltd (NASDAQ:MOBI)

Q2 2014 Earnings Conference Call

August 18, 2014 08:00 AM ET

Executives

Michael Song - Chairman, Chief Executive Officer

John Bi - Chief Financial Officer

Analysts

Na You – ICBC

Jun Zhang - Rosenblatt Securities

Nick Ning - 86 Research

Operator

Good morning and good evening, everyone. Welcome to Sky-mobi’s Second Quarter 2014 Earnings Conference Call. With us today are Sky-mobi’s Chairman and Chief Executive Officer, Mr. Michael Song; and Chief Financial Officer, Mr. Mr. John Bi.

Before I turn the call over to the management, may I remind our listeners that in this call, management’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company’s filings with the Securities and Exchange Commission. In addition, any projections as to the company’s future performance represent management’s preliminary estimates and Sky-mobi assumes no obligations to update these projections in the future as market conditions change.

To supplement its financial results presented in accordance with IFRS, management will make reference to certain non-IFRS financial measures, which the company believes provide meaningful and additional information to understanding Sky-mobi’s operating performance.

A table reconciling non-IFRS financial measures to the nearest IFRS equivalents can be found in the earnings press release issued earlier today.

For those of you unable to listen to the entire call, a recording will be available via webcast at the Investor Relations section of Sky-mobi’s website at www.sky-mobi.com/en.

Now, it is my pleasure to hand the call over to Sky-mobi’s CFO, Mr. John Bi. Please go ahead, sir.

John Bi

Thank you, operator. Welcome, everyone. Thank you for joining us. We are very pleased with our second quarter's 2014 results. To begin, revenue for second quarter of 2014 increased to RMB170.2 million, which exceeded the high end of our prior guidance with primarily due to the strong growth momentum of our smartphone business and our first [inaudible] into mobile gaming.

Smartphone revenue increased quarter-over-quarter by 51% to RMB132.5 million and smartphone revenue as a percentage of total revenues reached a historical high of 78%.

At this point, I will provide a detailed update on why we are being so successful in mobile gaming and our strategy going forward later. One financial point I would like to highlight in particular is that our net profit surged almost 13-fold to RMB63.4 million from RMB4.6 million in the previous quarter.

The last financial highlight is that, non-IFRS net profit increased by 624% quarter-over-quarter to RMB66.1 million in the second quarter of 2014.

These results are bolstered by our unique multi-pronged approach to providing to developing our smartphone platform and ability to grow the platforms average new user per day to 450,000 and average monthly active users to 30 million during the period.

In particular, our strategic partnerships with major telecom operators both in China and overseas continued to boost our mobile game distribution capabilities and enhance our ability to provide a superior user experience to our customers.

During the second quarter, our deep collaborations with China Mobile and China Unicom, enabled us to expand strong penetration into Beijing, Foshan and a few major cities in Guangdong Province.

As of June 30, 2014, Sky-mobi services were available at over 40,000 telecom stores in China. In addition, in May, we established two major strategic partnerships with Tencent and Xiaomi, bringing our distribution network to over 100 channels. The second quarter also saw continued sequential improvement in operation as a game publisher.

With that highlight, I would like to discuss our successful turnaround strategy and focus going forward in great detail. As many of you know, our core business has been successfully built around our Maopao-branded family of android-based applications and services that are pre-installed via our offline shop partnerships with smartphone manufacturers and telecom operator’s physical stores.

By controlling this platform and this channel, we are able to directly select the content we choose to promote and emphasize to our massive user base, including our self designed games and exclusive game titles in our portfolios helping to further drive our monetization efforts.

With Maopao's strong growth momentum we have successfully evolved our core business from feature phone to smartphone and are now focused on acquiring new users and expanding our overall user bases. As a key part of this strategy going forward, we will continue to focus on casual games.

To-date, we have distributed over 200 casual games, some of which are with exclusive distribution rights in the China market driven by our focus on developing casual games, the single player games segments contributed the largest share of total revenues in the second quarter.

We focused on these games because they are easy for users to play. They require much lower developments and the marketing costs than other more hard core games and allow us to greatly diversify our gaming portfolios and not rely on any one specific game which carries a lot of risks.

In selecting and developing light games, our team had acquired deep expertise as well as a thorough understanding of casual game players' behaviors in China, especially with our core grassroots user base of 20 to 29 years old who represent 70% of our overall user.

In selecting which games to acquire and import from overseas developers, we work with many boutique game developer shops with high quality games and analyze their games for potential localization and adoption in our various markets.

Lastly, we believe that our success has been predicted on the well-thought out strategy we established many quarters back. Going forward, our renewed focus in further differentiating our distribution capabilities platform and content from other peers will position us very well for the long run.

Each of our business segments continued to grow, we believe that we are fortifying our position in the mobile game industry. These increasingly high barriers to entry will enable us to further strengthen our market leadership position.

Looking forward, we will remain focused on executing our smartphone strategies through firstly, further enhancing our content offering with a more diversified selections of licensed game from third-party developers globally. And secondly strengthening the effectiveness of our distribution services through network expansion and continuously growing the user base through offline store and pre-installed handset channels.

We believe that these initiatives will help us to build upon our renewed growth momentum and strong user base and further lay the ground for expansion going forward.

With that, let's go through our quarterly financials in great detail. Before we get started, I would like to clarify that all the financial numbers we are presenting today are in RMB amounts unless otherwise noted. Additionally, this quarter, we are highlighting both quarter-over-quarter and year-over-year comparisons as we feel this will give investors a fuller picture of our turnaround story.

During the quarter, our total revenues increased by 32.4% quarter-over-quarter to RMB170.2 million from RMB128.6 million and a 35.9% increase year-over-year.

Revenues from smartphone business were RMB132.5 million, up 51% quarter-over-quarter from RMB87.5 million and up [617.8%] [ph] from the prior year period.

Smartphone revenues accounted for 77.8% of total revenues in the second quarter, a new record high for our company. Beginning this quarter, we will break down our smartphone revenues into three categories. Revenues from single-player games, revenues from multi-player games, and advertising revenues.

Revenues from single player games increased 63.3% quarter-over-quarter to RMB93.1 million from RMB57 million. Average revenue per paying user for single-player games were RMB8.8. Revenues from multi-player games increased 27.2% quarter-over-quarter to RMB26.1 million from RMB20.5 million.

ARPU for multi-player games were RMB161.4. Advertising revenues increased 32.1% quarter-over-quarter to RMB13.2 million from RMB10 million. Total non-IFRS cost of revenues increase by 32.7% to RMB127 million from RMB95.8 million in first quarter of 2014 and by 39.7% from prior year period.

Non-IFRS cost associated with payments to industry participants increased by 34.8% to RMB120.2 million from RMB89.2 million and by 44.3% from RMB83.3 million in the prior year period. The increase was primarily due to the increased channel cost, which was largely in line with the increase in revenues, and the increased content provider costs due to the higher revenue sharing with smartphone content providers.

Non-IFRS direct cost was RMB6.8 million, an increase of 3.8% from RMB6.6 million in first quarter 2014 and a decrease of 10.6% from RMB7.6 million in the prior year period. Non-IFRS direct cost included salaries and benefits, depreciation, office expenses and utilities directly related to the operation of Maopao application stores on feature phones and smartphones. The year-over-year improvement in non-IFRS direct cost as a percentage of revenue was attributed to the Company's initiatives to focus on smartphone market.

Non-IFRS gross profit increased 31.6% quarter-over-quarter to RMB43.2 million from RMB32.8 million, a 25.9% increase from RMB34.3 million in the prior year period. Non-IFRS gross margin was 25.4% compared to 25.5% in the first quarter 2014 and 27.4% in the prior year period. This year-over-year decrease was principally due to the general decline associated with the feature phone business.

Total non-IFRS operating expenses were RMB32.6 million, an increase of 17.4% from RMB27.8 million, and an increase of 5.3% from RMB31 million in the prior year period. The increase was mainly due to the increased marketing and promotion expenses to promote our platform and products.

Non-IFRS net profit increased by 644.2% quarter-over-quarter to RMB66.1 million from RMB8.9 million. Non-IFRS basic and diluted earnings per common share were RMB0.28 and RMB0.27, which represent the equivalent of RMB2.21 and RMB2.20 per ADS, respectively.

We continued to strengthen cost control to maximize cash flow from our feature phone operations, while allocating more resources to our smartphone business. As of June 30 2014, the company had cash and cash equivalents of $614 million.

Going forward, we will continue to maintain a strong cash balance from our feature phone segment, which will enable us to continue to invest strategically in the development of smartphone business.

Turning to our business outlook for the quarter ending September 30, 2014, we expected total revenues to be in a range of RMB200 million to RMB210 million.

With that, we would like to open the call to the question. Operator, please? Operator?

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions) Your first question has come from the line of Na You from ICBC. Please ask your question?

Na You - ICBC

Hi. Hello, John. Good evening. Congratulations on the strong [inaudible] guidance quarter again. I have two questions here [inaudible]. Firstly, regarding your cooperation with the telecom operators on the physical stores, are there any updates about this business that you (Inaudible) results and also what should we expect for the [inaudible] of this business growth going forward. Also, what is the company's expectations for this business? Thank you.

John Bi

Thank you, Na. Yes. I think your first question is with regard to the operators we have been working with for the last few quarters, and your second question is regarding to our competitive advantages compared with our peers. Are those two questions you asked?

Na You - ICBC

Hi John. These two are the first question regarding to your cooperation with the telecom operators and I will have a follow-up question. I haven't asked it yet.

John Bi

Okay. Great. Okay. Thank you. Yes. I think, we have a little bit problems with the line. Okay. In line of our cooperation with telecom operators, we are having continuously development - we have the continuously deepening of collaborations with telecom operators during the second quarter.

We start to expand our strong penetrations into Beijing and Guangdong, the two regions with most large mobile users population as you know. Well, our collaborations with telecom operators really requires a long time of negotiations and also training and system customizations which establish high entry barriers, but once we successfully enter into partnership with a new region expansion or collaborations with physical store will be faster and easier.

As of June 30 of this year, we have [tied] [ph] up with over 40,000 telecom stores nationwide. Since we have started partnership with the above two regions, we believe our penetration rates will achieve a stronger growth in the second half year.

Na You - ICBC

Okay. My second question is regarding the business, a much broader question for the industry. Since the market has (Inaudible) performers after its IPO in the U.S. and also the market adjusted [inaudible] during the deal in Hong Kong. Would you share with us what makes Sky-mobi unique in the industry among other players in the business maybe on a business and operational perspective? Thank you.

John Bi

Na, I think that's very good question, so why not let me translate that to Mike Song, our CEO. I think, he is in as much good position to provide the insights of industries and also our peer competitors and also Sky-mobi as a very strong competitor in the segment. Just give me a second please.

Na, I think, we got Mike Song, our CEO, is going to give you all answers in Chinese first. I am going to translate as well.

Michael Song

[Foreign Language]

John Bi

Yes. I think, Michael just mentioned, first of all, we have as a team read carefully the prospectus filed by DSKY and we believe DSKY is very strong competitor, their financial and operational results show a very strong picture. There is no doubt.

Secondly, Michael just mentioned, we see the casual games as being a big part of their business and that's also demonstrate what our strategy is coincidently and in line with their business model that is we are much more focused on the casual games and that's where we trend in the whole segment of industry.

Michael Song

[Foreign Language]

John Bi

Secondly, the most critically [inaudible] practioners as these segments Michael mentioned, compared with the normal RPG games, [inaudible] the light games would give us lots of advantage, it's not only for Sky-mobi, but industry as a whole, the first of all is the relatively speaking lower cost to acquire all the distribution [inaudible]. As publisher or distributors we have to corporate with third-party distribution channels. In that case, you have to negotiate a much affordable rate for leverage the third-party channels. If you distribute the light games, that cost will be more controllable.

Secondly, from the content perspective, the exclusive sign up rights to buy the light games is much, much lower or controllable compared with the normal RPG games and also the split or the revenue sharing from the game operator or publishers and the game developers is more reasonable and that is another critical reason why light games got more and more popular. Lastly, is the unit cost of acquiring payers, if you look at the numbers published in the industry-wide papers, you will realize if you acquire one paying users normally, RPG games, they are very expensive.

Normally RMB20, RMB30 is very expensive, but if you look at the light games is really speaking, lower, normally RMB5, RMB8 so from that perspective we also believe the light games will be a much more popular trend in the near future as is industry.

Michael Song

[Foreign Language]

John Bi

Okay. Michael just mentioned, compared with other games distributors or game publishers Sky-mobi does have a few advantages. Number one is Sky-mobi had kept a long-term working relationship with China Telecom, China Mobile, China Unicom, all their games centers, all their different apps store we have kept more than 5 to 10 years working relationships, both online and offline. That is really, really something we have leveraged from [inaudible] feature phones products. That is not something can occur overnight.

Secondly, we believe Sky-Mobi is a platform company. Why? Because, we do have our sales controlled distribution channels. As we mentioned, now we have around 30 million active users per month. That is a good evidence of our self-controlled distribution channels.

Lastly, Michael also mentioned if we do have self controlled channels, we can have sufficient time to test the game and also to distribute the game to some players to try out, so that is why we can increase the operational excellence of distribute and publish live games.

Michael Song

[Foreign Language]

John Bi

Additionally, Michael also mentioned compared with other game distributors and publishers, Sky-mobi is much more dedicated itself to get focus on light mobile games distribution. As a cooperate strategy, we are much more focused and gets devoted all of our effort in light games, because we trust that is the [inaudible] and winning solutions for the whole corporate.

Other hand is the people side. We do believe we have very strong, strong intentions to build up first-class teams overseas. As you probably know, in the Market Street in San Francisco we have established our office, the first office in North America, we had a very talented young man from [Gimmick] [ph] who has been responsible for their marketing for so many years. He is a typical U.S. person, knowing marketing very well and he is a very popular and energetic in this industry.

Also, we have a [Danish guy] [ph] from [Gaya] [ph] he is CEO of [Gaya] [ph] and is responsible for all the commercial matters. Finally, in the near future, well we do lock up a very high profile candidates who have been CEO of a U.S. company in China for many years. He knows the industry very well and we are talking to him and is going to join us very shortly and lead the whole Sky-Mobi's overseas, especially North America team. So that has proven the company has not only from a strategic perspective also spend a lot of time, energies, monies to build up a first-class and a winning team to ensure our strategy to execute thoroughly.

Michael Song

[Foreign Language]

John Bi

We strongly believe in the near future say timeframe 12 months, Sky-Mobi will be the number and first choice all of the global game developers' choice in China to get their light game distribute and published.

Michael Song

[Foreign Language]

John Bi

Yes. That’s all the Michael comments. You now have any follow-up questions on that end?

Operator

Na You - ICBC

Thank you, John. I hope, well, to the follow-up is for Michael. Is that a company extended your overseas partnership for deem licensing and also you have stressed that your local game distribution channels top agents like corporate with Baidu, Qihoo and Xiaomi. Would you update us? For the longer term will you focus on overseas expansion and overseas partnership before the deem licensing, you would still focus on the local game distribution in China? Just to clarify that.

John Bi

Yes. Got you. Give me a second.

Hi Na. To answer your question Michael is going to give you his answer.

Michael Song

[Foreign Language]

John Bi

Yes. I can just give a little bit translations. Michael just mentioned. First of all, why we get this newly development of cooperates much more focus on overseas, because we realize all the developers also Koreans, Japan, they are so eager to entering the China markets as you know that is most lucrative market, so all of the global developers but as it gives that instant entry into China market.

While they have the interface with Sky-Mobi's, they realize, there are few distinguished competitive one page of Sky-Mobi. Number one, we do have offline channels which is so unique in China to ensure every each imported games and gets thoroughly tested and to be distributed in that channel.

Secondly, they do see Sky-Mobi has accumulated very abundant user behaviors of all those grassroots game players in China from our features phone times. Also, they realize in China every good games needs to recollect monies through China telecom operators. It is Sky-Mobi who has more than 10 years working relationship with all the telecom operators, so we can leverage all this working relationships and collect money back more efficiently and effectively, so that is why we think it is a win-win solution, we have all the global game developers, the U.S. guys, Japanese, Korean developers enter into China's, by leveraging our own platform, our channels. In the meanwhile, we also like to take these opportunities to entrench our growth as a light games distribution platform in China.

Well, still back to your questions, there is no doubt we are going to still focus on domestic market that is a mature market. We have [that] for last 12 months, but for this year we are much more focused on a higher quality light games. That is for sure.

Michael Song

[Foreign Language]

John Bi

Yes to support the whole corporate strategies, we have developed a marketing promotion programs in the September that is to each every register game developers, we are going to offer a $5 million opportunities at all platform to line out there are so developers have registered with us. It give opportunities to let all developers kept gathered and also try their games, testing their games through all channels and make sure we have a good collaborations with all those small and medium-sized developers. That’s what may even occur in the middle of September in Guangdong. Na, does that pretty much answer your question?

Na You - ICBC

Thank you. Just about (Inaudible) Thank you, Michael and John.

John Bi

Thank You. Operator, next question?

Operator

The next question comes from the line of Jun Zhang from Rosenblatt Securities. Please ask your question.

Jun Zhang - Rosenblatt Securities

Michael, John, thanks for taking my question. Congrats on the great quarter, so I have four questions. The first one is for Michael.

For Michael, could you talk a little bit you U.S. game imports and the publishing business and what's the latest updates on that.

My second question for John, we are seeing the companies has quickly expanded to the Southeastern Asian market. Could you talk a little bit about your strategy and your targets in those markets?

My third question is, I want to understand more about your operational data, including distribution volume on Maopao platform monthly and quarterly and my last question is about you recently announced the $20 million share buyback. I just want to get updates on that. Thanks a lot.

John Bi

Thank you, (Inaudible). I think you basically have four questions. Number one is related to our getting import from U.S. and also overall development strategies for that. Our second one is our overseas expansion in Southeast Asia. Number three is about our content distribution through our Maopao platforms. Last one is our buyback. Are these are the four questions you raised just now?

Jun Zhang - Rosenblatt Securities

Yes. That’s all my questions. Thanks a lot.

John Bi

Okay. Let me have Michael to answer your questions first.

Michael Song

[Foreign Language]

John Bi

Yes. Michael just mentioned in particular games we are working with, there are games in particular we are right now negotiating and also working very closely with their developments team, one is call major gamer that is a New Zealand developers team's again from the [roll kid jumper ] it's a small boutique developers teams in New Zealand, but they too very innovatively developed this games and it’s a small team but all the Google Plays, IOSs have a very high rank key and remark to these games and we are going to test and air this games in September or October.

Another one we are working with called (Inaudible), which is a very critical, very successful game, is the PVE and PVP model games. This single pair of games is so critically high ranked in the Google Plays and IO App. That is from a Russia game developers, game insight that is the biggest distributor.

We have exclusive distribution rights in China, so both of the games are going to be aired in the middle of June or early of October. As Michael mentioned, why we are or we can't, locked up or we are capable to find those games because we do realize all those are grassroots behaviors will be a critically understood by all team members. Then we tend to lock in this high game from overseas, so that is another proof why we can execute our overseas strategies successfully and effectively.

Michael Song

[Foreign Language]

John Bi

Yes. Michael also mentioned, you guys probably get aware of recently, Sky-mobi has been very actively participate all those industry conference. For example, in last month, where the great contributors to casual in San Francisco, U.S. and also few weeks ago we also participated [game cup] in German. All those two confluence is well known in industry and Sky-mobi play a big part in that.

Also, Michael wants to emphasize again in terms of the team building and the leadership, first of all, Michael is going to lead the whole overseas strategy and team himself and also meanwhile we have agreements with a top-notch CEO from U.S. game developers team in China. He is going to join us very, very soon. Also given our internal capabilities and also calibers developed internally, we believe these overseas team will be a number first cost in China to import the global live game into China.

Does that pretty much answer your first question?

Jun Zhang - Rosenblatt Securities

Yes. Thanks. That's all my questions. Thanks a lot.

John Bi

Okay. Yes. I think the second question you mentioned are recent expansion of our business in Southeast Asia. I think Southeast Asia is very, very attractive market to us. In general, Southeast Asia, has more than 554 million population with 70 to 75 penetration rate.

Mobile gaming market is more than $U.S.1 billion and game clears normally, they pay e-ad purchase by third-party channels and also credit card is not quite popular in those countries, probably less than 10% in general, so according to the data 55% to 60% downloaded and installed are the casual games in Southeast Asia, so every 3.5 days payers who would like to search and download a new game, the most phenomenal thing is more than 38% of the smartphones comes with pre-installed app store like applications and more than 50% of those pre-installed were viewed, so if you listened to all of those facts I gave to you, the best way to portrait us is Sky-mobi, because we do have all of these kind of attributes and our strategy is to enter or penetrate these market. Number one, we are going to leverage our OEM and manufacturing partnerships, we are going to pre-installed Play app. It is our international version of our Maopao app store into all those economic smartphones in Southeast Asia. Meanwhile, we also built a very strong relationship with our local payers such as [pan pan] in Malaysia and MOVI in Indonesia.

Given all of those experiences we have accumulated in China, we have penetrated thoroughly in build up third-party payment channels with telecom operators with all those local payers. In Indonesia, we have teamed up with [Telkosma, and XL]

In Malaysia, we have worked very closely with [Maxxis] and [Selkom]. All those are big, local players. From the content side, on the game side, we have sourcing and selective street games that fit into Southeast Asia local sales where it's called (Inaudible), which is a RPG game and other one is called (Inaudible), which is innovative libraries and car game and the last one (Inaudible) a traditional car game. We have closely worked with local game developers to find ways to localize the game and also to develop more innovative game plays, language and in-game buys giving all those kind of experience and demand from economic smartphones from the Southeast Asia are proven strengthens our integrated payment channels and all those innovative casual game distribution channels will help us to penetrate and fast growth awareness in Southeast Asia and we strongly believe that is going to be a great addition to our existing business.

Is that something we talked about Southeast Asia. Answered your question?

Jun Zhang - Rosenblatt Securities

Yes. That's great. Thanks a lot.

John Bi

Okay. Your next one is about the accountant with distributors for Maopao platform, but the thing is you know we distribute various content through Maopao platform, which is Sky-mobi owned distribution channel. As Michael just mentioned services high is our self-owned channels. We can reach and distribute content directly to designated smartphone users through our Maopao app store game sensor browser, assistant and so on, By leverage our pre-installation capabilities, so under compass, our self-controlled distribution channel can do distribute over 100 million content in the quarter.

Please bear in mind that is just Maopao platform that we disclosed in or 6-K in second quarter we have teamed up with more than 100 third-party game distribution channels. Such as Tencent, Wandoujia, Xiaomi and Qhioo. If added again, distribution as those channels we do see our distribution capabilities far beyond our few hundred millions. That is very meaningful distribution capability in Mainland China right now, so I think personally that is why we are differentiated Sky-mobi a platform company rather a gaming company, so that is I think what we like to discuss in light of the distributional content and Maopao platform.

That almost answer your questions?

Jun Zhang - Rosenblatt Securities

Yes. Thanks a lot.

John Bi

Okay. Your last question is a buyback right? Well, as of June 30, 2014, we have already purchased 3.5 million ADS back from open market. That is equivalent to 28.3 million common shares. Amount in U.S. $9.1 million and all of the repurchased shares have been cancelled, so that means well back last year, we announced a 10 million buyback program up to-date $9.1 million has come, so we have buyback and cancelled more than 3.5 million ADS,.

Looking forward, we are just in June of this year. We announced another 20 million buyback, because start from July 1st, we enter into a blackout period, we are not able to buyback any share from local market, but our history tells we do have a good record to execute what we are promise, so this new U.S. $20 million buyback programs, we are be execute as so as we actually enter into a legitimate period to buy.

Also, we believe now we are going to continue to execute this plan going forward to enhance investors', investment returns and confidentially we are going to make more and more confidence to build our investors. (Inaudible), that is our plan for the buyback.

Jun Zhang - Rosenblatt Securities

Thanks a lot. Congrats again on going quarter.

John Bi

Okay. Thank You. Thank you for all the questions. Hey operators, can we go for next?

Operator

Yes. Sure, sir. Your next question comes from the line of Nick Ning from 86 Research. Please ask your question?

Nick Ning - 86 Research

Hi, John and Michael. Thanks for taking my questions and congratulation on the strong results. I heard that seems mobi is more interested in single player games that Michael believe enjoy less competition and higher profitably from users acquisition perspective, so just curious do we see the content cost trend, how do we see the content question trend for such single-player games?

Will mobi also be competing for some high profile overseas single player games like our Dream Sky has licensed us, we think our users will be less selective than other app stores and platforms in terms of game quality. Also, how about payment cost for such game versus multiplier games that’s our single player games also rely heavily carriers SMS payment? Thank you.

John Bi

Hey, Neil, that’s really good question. Why not give me a second I will translate that to Mike.

Michael Song

[Foreign Language]

John Bi

I think Michael does give the very good answers in terms of how to acquire good light game overseas, Michael, overseas first of all we do have a self-own channels our Maopao platform. That provide a very good testing platform to be again developers as you know all the overseas developers, they need to provide the localizations stage in China, so while they get the sauce cold to us or themselves to get localize and test, they need a real platform, they need a real players to play their game and test and collect all the numbers and no more mobile gaming, nothing about numbers, so our platform is a true self-controlled channels and also we have all those accumulated grassroots users to support us, so that is number one.

Number two as Michael mentioned, recently recovery we do promote a 5 million downloads plan. That is open platform to every registered game players, so that provides a confidence to all the game players that Sky-mobi is a good place to give a try.

Certainly as Michael just mentioned, from a team perspective as we say it again and again, we are not only invest on a person, but also we invites all the insights of these industries. All those peoples they know exactly what the light is game market in North America and overseas, having nowhere to find games who's to talk about that, so they know the market very well.

Finally, also Michael said we are as a platform company. We do have our own offline kind of pre-installation uniqueness. That make us quite differentiated. Well, as you know Michael just mentioned. Last one is we are hunger. We are much hunger than any other light game publishers and distributors right now because we believe the host strategy the whole strategy for this company for the whole year especially second half of year is to go import light game from overseas, so I think that is from different perspective we try to answer your question how, where and what we are going to get the fact light game overseas.

Michael Song

[Foreign Language]

John Bi

Yes. (Inaudible). I think Michael give a good answer to your question. First of all of us live in China , live in this local market, we do all experience - we do a live by the [SP] times when we get impact from the operators. That is why I think everyone survive that times to not have a good memories in terms of you have close or you depend on operators, but we do believe time change because when we enter into mobile internet time it was totally difference, first of all the street major manipulate operators they do realize it have to be more opens and it’s a mutually trusted, mutually worked against their collaboration perspective so that is why we believe right now is a best time for the operators and all our commercial players to work together.

Secondly as we are learn from the last few months, the light game it is nobody like it or not it is the truth the SMS short message payment is most effective ways to get paid. Why? Because, you know, while we light games is now required to pay RMS100 or RMB250 normally just they paying RMB20 that is a lot easier just adjusting tax from your monthly phone bill. Also, you realize the most, highest gross from the smartphone segment is the price tag from RMB500 to RMB700, so those are the first time our smartphones and those are grassroots that is all a user of Sky-mobi.

Imagine, in the third-tier, fourth-tier cities all those teenagers or adults looking at (Inaudible) the best way for them is to use the phone bill deductions as our ways to pay in the game plan, so that is not as we just discussed we like it did not or that’s to live with all kinds no notes we trust the telecom operators much open and in the street telecom operators number one or number two commercial partners with them, so that's why gives Sky-mobi a very strong competitive advantages right now. We do not believe are the cooperation with the telecom operators who are bringing us, that larger that is competitive and key to us especially into the mobile internet time.

Michael Song

[Foreign Language]

John Bi

I think Michael give a very good insight of industry, first of all how we look at all of those ranking list from Google Play's OS. All those players the name of the game does not change that frequently, same name appears for two or three years.

Michael believe personally that it is not a good phenomenon for the whole industry, for the whole players. We do see all the 3G having positive the 4G coming. That's what going to be faster and faster and most of the pack is going to be cheaper and cheaper. So that is something no one can stop. So what is opportunity generate by all those change overwhelmingly.

The number one is, we realize the light and heavy concept in "is relatively speaking" or currently right now we are talking about something heavy in two or three months going to be light. In next few months will be really light so that is something we are living with.

Secondly, we do see all those fast evolving networks we provide the quality of the service and providing more diversities of the service, so that is why Michael just mentioned we are now going to stick with something of the user behaviors, some stick of the game plays rather why we just promote it like a casual game.

We try to bring changes. We try to bring more competitions and we try to be more innovative games from overseas from Europe, Japan and North Korea, so that is why Sky-mobi position is still a very strong challenger to this industry we are going to bring more and very high quality games to our users to all those grassroots and make sure they we stay up for a long time.

Michael Song

[Foreign Language]

John Bi

To conclude, Michael said while we realize all the Chinese players especially the next generations they like to more fund innovative play mobile games as Sky-mobi take that as our comply mission to satisfy all their needs. Nick that's all the answer for three of your questions.

Nick Ning - 86 Research

Thanks for that. Allow me for quick follow-up. That is in terms of new game launch place on the lifecycle of our single-player game. How many new games do we need to put online, say, for example most to keep the users engaged and increase their spending and any idea of how many single player games a player can play at the same time. Thank you.

Michael Song

[Foreign Language]

John Bi

Okay.

Michael Song

[Foreign Language]

John Bi

Hi, Nick, just to translate for other investors, Michael just mentioned in September, we have planned to have three important light games on air. By end of this year, we are going have 10, so in line of the lifecycle of the games is not only for the light, but also for the games in general.

Normally it 8 to 12 months, if they luck good quality of the games, it will be longer. Michael also mentioned, if we are going to operate a game more successfully that is not only relay on the marketing strategies, how to make sure you get more and more users and most push through most quickly is to make sure people stick on that game and also people have a good word of mouth to make sure more and more people were joined to play, join community to play the game, so that is something Michael summarized from the day-to-day operation perspective.

Michael Song

[Foreign Language]

John Bi

Michael also gave his personal experience when he working in this industry for last 12 months. His summary is the first five seconds when any one play a light game you need to give them a strong feeling of this is great game not only from the graphics, music, but also from the true feelings.

Secondly, in the next three minutes you need to give the players a strong momentum to get a pay for something, so that is we called in 3 minutes people get excited, so that is why a lots of our overseas games enter into China do not have a hit, because they lost last three minutes times book. If you could have that spud in three minutes to pay for something that's a proof it's a successful game in China.

The last one is word of mouth. Michael mention, if we have a five second plus three minutes that we need to have a very strong word of mouth to get more and more peoples to join the committee and play the game. That’s what made the game a long and success in the long run, so that is Michael just summarized from his personal experience. Hey Nick anything to ask?

Nick Ning - 86 Research

That’s all my questions. Thanks a lot Michael and John. Thank you a lot.

John Bi

Okay. Great. Thank you.

Michael Song

Thank you.

John Bi

Operator, any questions?

Operator

Yes, sir. We do have a question coming from Natalie Wu from CICC. Please ask your question?

Unidentified Analyst

Hi John, Hi Michael and this is [Stanley] [ph] on behalf of Natalie Wu. Basically I have two questions, one is several housekeeping question. Can you share with us the percentage of the revenue comes from Maopao community and also from other channels?

John Bi

Sorry. I do not get you slowly. What's the percentage say it again?

Unidentified Analyst

Okay. I mean the revenue contribution from Maopao community and from other channels?

John Bi

Okay.

Unidentified Analyst

Another question is about our revenues generating games, about the license games, so do we need to pay like upfront fees to these overseas game developers? The third question is about pre-installation, so can management share some colors about the cost of pre-installed installment, so about the trend recently so thanks for taking my questions.

John Bi

Okay. Let me just repeat the question, so number one is you want to know the percentage of the revenues contributed from Maopao platform right?

Unidentified Analyst

Yes

John Bi

Secondly, you want to know the revenue share and policies, do we pay upfront and what is the later on profit sharing from the Sky-mobi and game developer right?

Unidentified Analyst

Yes.

John Bi

Lastly, you want to know in general, what is the cost do we play for pre-installation.

Unidentified Analyst

Yes, exactly. Also about to the trends, so the cost is increasing, decreasing or just stabilizing?

John Bi

Okay. Got you. Let me just talk this with Michael first, I going back going to back to other question very short.

Unidentified Analyst

Okay. Thank you.

John Bi

Hey, Stanley. Are you still there?

Unidentified Analyst

Yes

John Bi

I just talked to Michael. He said he listened to your question, do you mean the Maopao community revenue a percentage of Maopao platform percentage.

Unidentified Analyst

Sorry, it's Maopao platform, so basically revenue Maopao platform. Sorry.

John Bi

Okay. Got you. Okay.

John Bi

Stanley, I think we got the answers. Michael just asked me to answer your questions. The first question is in line of the revenues, how much is the revenue contribution from Maopao platform.

Well, first of all, we do not give a officially disclosure to what is the revenue contribution from Maopao platform. In general, we believe the revenue contributed from the Maopao platform is close to 40% to 50% of the total revenues.

The second question is how much we pay upfront and what is profit sharing, so because we have a very strong presence in North America and in Japan and North Korea, many of the games we get, we pay zero upfront. That is free because we have very strong platform. We have strong pre-installation channels in China, so that is why it make a very advantage position to get that game for free.

In terms of the revenue split, while we have again up and running so that split percentage is from 70 to 30, 60 to 40 Sky-mobi always take a big part of the revenues.

Unidentified Analyst

Okay.

John Bi

Last question is what's the cost of pre-installations in China? As I always communicate with analysts that is really the great of the company's never ever gets - but we can tell is what is current industry average, so we do know industry average right now for this year is around RMB1.5 to RMB2 per user. Talking about trend, we do to the trend goes up a little bit just because, number one, we do see the consolidation of the smartphone manufacturers and coming of the 4G, so I guess 12 months looking ahead the pre-installation costs will go slightly a little bit higher.

Unidentified Analyst

Okay. Thank you. That's very helpful.

John Bi

Great. Okay. Thank you. Operators, any questions?

Operator

No sir. (Operator Instructions). There are no further questions at this time. I would now like to hand the conference back to your speaker for today. Please continue, sir.

John Bi

Thank you, operator. Thank you all for your interest in Sky-mobi. We are excited about the smartphone opportunity and believe we are uniquely positioned to execute our strategy.

With that, I want to thank everyone for joining the calls today and wish everyone well for the week. Good Bye. Operator?

Operator

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

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