Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Q4 2005 Earnings Conference Call

February 23, 2006

8:00 p.m.

Executives

Brandi Piacente - IR

William Ding - CEO

Denny Lee - CFO

Michael Tong - COO

Analysts

Safa Rashtchy - Piper Jaffray

Wallace Cheung - CSFB

Richard Ji - Morgan Stanley

Frank Shi - CLSA Limited

Dick Wei - JP Morgan

Lu Sun - Lehman Brothers

William Bao Bean - Deutsche Bank AG

Antonio Tambunan - Bear Stearns.

Ming Zhao - Susquehanna Financial Group

Tian Hou - C.E. Unterberg

Operator

Good day, everyone and welcome to the NetEase 2005 fourth quarter fiscal year 2005 earnings conference call. As a reminder, today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Ms. Brandi Piacente. Please go ahead, Ma'am.

Brandi Piacente

Thank you, Operator. Today you will first hear from Mr. William Ding, Chief Executive Officer, who will discuss some of the highlights of the quarter and for the full year 2005. Next will be Mr. Michael Tong, Chief Operating Officer who will review our online game business. Finally, Mr. Denny Lee, Chief Financial Officer will review the financials.

Before we continue, please note that the discussion today will contain forward-looking statements relating to performance of the Company and are intended to qualify for the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors. Some of these risks are beyond the Company’s control and could cause actual results to differ materially from those mentioned in today’s press release and this discussion. Risks related to the fluctuations in the value of the renminbi with respect to other currencies could also adversely affect the Company’s business and financial results. The Company does not undertake any obligation to update this forward-looking information except as required by law.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on the NetEase corporate website at corp.netease.com. I will now turn the conference call over to Mr. William Ding, Chief Executive Officer of NetEase.

William Ding

Thank you, Brandi. Hello everyone, and thank you for joining us. I am very pleased to be here today to review NetEase's fourth quarter and the fiscal 2005 performance. 2005 was another strong year for NetEase, [with our rapidly growing] our online games and that was hard to dismiss.

Total gross revenues for full year increased 76.8% and the net profits rose 111.1% from 2004. NetEase's is positioned in China as the number one online game operator and developer, and one of the most popular websites, receiving 786 million page views in December of 2005.

Total gross revenues for the fourth quarter increase 5.3% over the prior quarter, and 75.3% over the fourth quarter of 2004. Net profit for the quarter grew 7% over the third quarter of 2005 and 112.6% over the corresponding period in 2004.

Touching upon each segment, our online game business continued to outpace the industry in 2005 with the total gross revenue growing more than 119.3% from 2004. Compared to the [inaudible] those are 52.6% according to the IDP.

Fourth quarter online game revenues were better than previously forecasted, and for the fourth quarter and grew 7.6% over the third quarter and 92.5% over the same period a year earlier. China's online game market is the largest in the world. There were 26 million users in 2005 compared to 20 million in 2004 with online game sales in China expected to grow by approximately 35.5% annually to reach $2.1 billion in 2010, according to IDP.

Moreover, the gross margin of our online gaming business has remained strong [inaudible] which makes it the most profitable. Our success has been driven largely by our two leading, in-house developed games, Westward Journey and Journey Online II and the Fantasy Westward Journey, which once again experienced new [inaudible] and they were in the fourth quarter, to over 1 million concurrent users, recorded in late December.

The power of the NetEase brand has created a smart community of our users, and our innovative products and the services offered on our portal has been the [constant business] put forward to users [inaudible]. This gives us an advantage that we have over our competitors.

Turning now to our new game Datang. Currently, our 2.5D is in the stage of beta testing. [inaudible] under [external close status]. Tianxia, our 3D game, is under [internal close status]. We expect an open beta launch of Datang and Tianxia to be in the second quarter of 2006. We continue to focus on the performance of our expanding online games, while continuing to invest and develop our next translation tool and 3D game [inaudible].

Touching on our advertising business, fourth quarter revenue is decreased 5.9% versus the third quarter. Fiscal management will continue in light of our Company guidance.

[Inaudible] The demand, the largest email provider in China, continue to share with advertisements by our Company. They mention our website content enhancement and are greatly focused on our [prodding] the network innovation market channels and the sales report.

Let me turn now to Michael Tong who will provide an overview of our online games business for the quarter.

Michael Tong

Thank you, William. Hello, everyone. I will now provide a more detailed overview of our online gaming business for the quarter. Overall, we were satisfied with our progress in our online game services in the fourth quarter. Total revenues for this business grew 7.6% quarter over quarter and 119.3% year-over-year, driven by the continued success of Fantasy Westward Journey and Westward Journey Online II.

Our leading MMORPG game, Fantasy Westward Journey, continued to be the most popular game in China, and Westward Journey Online II was able to hold on to its #3 position in terms of peak concurrent number of players. Fantasy Westward Journey grew to over 1 million peak concurrent users in late December -- the games highest PCU level since its release in 2004 and the highest number of peak concurrent users in the entire MMORPG market in China. We are pleased to see Fantasy Westward Journey grew by 8.2% in terms of revenue during the quarter, although our expectations were higher.

On the contrary, Westward Journey Online II has achieved 5.8% growth during the quarter, reversing the previous increase trend, and has once again proven NetEase's abilities in expanding the life cycle of games we operate.

In view of the current market popularity and success of our two in-house developed games, we continue to focus more resources on developing better and more comprehensive expansion packs, new content for Westward Journey II and Fantasy Westward Journey, to take full advantage of the growing strength and nationwide popularity of these games.

The success of our in-house developed 2D game is not only evidenced by the continued help of China's MMORPG market, so a true testament of the strength of our team brings to the Company by producing games that drive customer loyalty and stickiness.

In addition to driving further growth with our existing MMORPG games, we continue to invest heavily in our game pipeline which includes Datang, our 2.5D game, and Tianxia, our 3D game. Although there has been further delay in launching the open beta of Datang, our 2.5D game, we believe such a delay will be rewarded by the market when it is released , this highly [inaudible] game. We are, at the moment, implementing changes based on the comments we received from the beta users.

As for Tianxia, we continue to target the open beta for the game to be reviewed in second quarter of 2006 and we continue to have high confidence on the success of this game.

All in all, 2005 was an exciting year with NetEase experiencing high growth, executions and presence, and demonstrating its dominance in the online game market in China. We were able to maintain the leading position amongst our competitors and once again outpaced the online game market. This demonstrates the strength of our business model, execution on all parts of the management and management team; a top tier employee base; the strong vision from the top down and dedication to help shape the online game market and drive the highest quality of MMORPG games to players throughout China.

I will now turn the call over to Denny Lee who will go into the business in more detail of the numbers for the last quarter and the full year 2005.

Denny Lee

Thank you, Michael. I will go through some of the key highlights for the quarter and for the year 2005. All of the numbers are in U.S. dollars. Fourth quarter total gross revenues increased 5.3% quarter over quarter, and 75.3% year-over-year to $60.4 million. Total gross revenues for the full increased 76.8% to $210 million. Fourth quarter gross revenues in our online game business were better than the Company guidance, and increased 7.6% sequentially and 92.5% year-over-year to $49.7 million.

Full year 2005 gross revenue increased 119.3% to $170.9 million, and was a main driver of our top line growth. Advertising service revenue was also better than the Company's guidance. Gross revenues decreased by 5.9% quarter on quarter, and increased 64.6% year-over-year to $8.6 million in the fourth quarter. For the full year, advertising revenue increased 41% to $29.9 million.

Wireless value-added services and other revenue increased 4.4% quarter on quarter, and decreased 30.9% year-over-year to $2.1 million in the fourth quarter. For the full year, wireless value-added service and other revenues decreased 53.4% to $9.1 million. We believe the wireless value-added service market is subject to ongoing restructuring of the industry and margin erosion due to the increase of local competition.

Our gross margins for the online game business remain relatively stable at 89.4% for the fourth quarter, compared to 89.7% in the prior quarter. Gross margins in our online advertising services business declined to 62.9% in the fourth quarter, mainly due to the seasonal decline in revenue. [inaudible] remain relatively stable.

Gross margins for wireless value-added services and other business decreased to negative 1.3% in the fourth quarter from 11.3% gross profit in the prior quarter, mainly due to higher costs associated with the Company's services free of charge, such as free email services, which are included in this.

Total operating expenses for the quarter were $11.8 million, representing a 0.2% sequential increase and a 23.2% year-over-year increase from the corresponding period a year ago. The slight quarter on quarter increase in total operating expenses was mainly attributed to special year end bonuses from the Company on our game development team, in recognition of the success of such team during the past year, which was substantially offset by lower marketing expenses.

The lower marketing expenses in the fourth quarter resulted from the discontinuation of outdoor advertising and an overall reduction in the number of Company-sponsored marketing events. For the full year, total operating expenses were $44.6 million, representing a 32.3% increase over the prior year's $32 million, mainly due to the increase in R&D costs as a result of the increase in head count for our online game; as well as the $2.5 million one-time licensing fee we paid during the first quarter in 2005 for the online game 3D Energy.

Apart from that, G&A expenses also increased as a result of the Sarbanes-Oxley compliance we have undertaken in 2005. Our effective tax rate increased slightly from 9.3% in the third quarter to 10.5% in the fourth quarter, due to the fact that more revenues are being earned by one of the Company's subsidiaries that has a higher applicable income tax rate during the fourth quarter. We expect our effective tax rate for the first quarter in 2006 to increase to around 12%, mainly due to the fact of accounting for share-based compensation expenses under the new U.S. accounting rules.

We reported another solid quarter of net profits, which reached $34.3 million, representing a 7% sequential increase and 112% year-over-year increase. The Company reported diluted EPS for ADS of $0.96 in the fourth quarter, compared to $0.89 for the third quarter. For the full year, net profits totaled $115 million, 111.1% increase over prior year. The Company reported diluted EPS per ADS of $3.27 for the full year 2005.

As of December 31st, 2005 our combined total and held to maturity investments was $418.5 million. As we reported, a positive operating cash flow of $27.3 million, and $136.9 million for the fourth quarter and for the full year 2005 respectively.

Now I would like to read to you our financial guidance for the first quarter of 2006. Please note the following outlook statements are based on current expectations. These statements are forward-looking and actual results may differ materially.

We expect the total gross revenue of the Company in the first quarter in 2006 to be between $63.3 million and $64.7 million. With online game service revenue to increase by 8% to 10% quarter over quarter, and advertising service revenue to decrease by 8% to 10% quarter over quarter. Wireless value-added services and other revenue to be flat or decrease 10% quarter over quarter.

Net profit during the first quarter is expected to be between $33.1 million and $34.2 million. This estimate includes stock-based compensation expenses of approximately $3.6 million, which the Company is expensing for the first time in 2006 under new U.S. accounting rules. Please note that such share-based compensation expenses are non-cash expenses and will not result in any cash payment by the Company.

Also, we caution that we cannot predict the future exchange rate of renminbi versus other currency and therefore cannot accurately estimate the effect of any changes in exchange rates on our financial results. Accordingly, our guidance assumes no change in exchange rates in the first quarter of 2006 and have afforded the same rate as of December 31, 2005 of $1.00 to RMB8.0702. Our actual results could differ, however, from our guidance as a result of fluctuations in the RMB exchange rates.

We will now be happy to take your questions. Operator, please open the floor for Q&A.

Question-and-Answer Session

Operator

Thank you so much. (Operator instructions) Your first question is from Safa Rashtchy - Piper Jaffray.

Safa Rashtchy - Piper Jaffray

Hello?

Operator

Your line is open, please go ahead. Safa Rashtchy, your line is open. Please go ahead with your question.

Safa Rashtchy - Piper Jaffray

Hello, can you hear me? Hello?

William Ding

Hi, Safa.

Michael Tong

Hi, Safa.

Safa Rashtchy - Piper Jaffray

Congratulations on a great quarter. My question has to do with the competitive landscape. You mentioned that your games maintained their position, basically, both Fantasy and Westward Journey II. Last quarter you talked about the competition impacting your growth rate. Within that context, could you give us a sense of how do you see the competition from at least two angles. The competitive products from other companies, as well as the pricing issue, especially in light of what [Shanda] has instituted with their free to play. How do you think it had any impact in the quarter? As well as, what is your outlook for '06 in particular with your new games. Will you be following a similar pricing pattern or not? Thanks -- I am sorry for a complex question.

Michael Tong

Thanks, Safa. This is Michael Tong.

Safa Rashtchy - Piper Jaffray

Hi, Michael.

Michael Tong

We had explained in the last quarter that the competitive landscape during the last quarter was a bit more serious than we had thought, especially with the launching of the [Juji Fantasy] from Tencent and in fact, has seemingly to be a little bit fading during the quarter. We see that our competitors' product continue to become a commercial product rather than a free product. You also see some of the changes during the quarter.

But for '06, we believe that the competitive landscape continues to be just as competitive. We continue to expect new games coming out from different competitors, the likes of maybe Tencent or other players. Of course, obviously we are very confident with our new games, and also very confident with our team of the operation and also existing games.

Did that answer your question.

Safa Rashtchy - Piper Jaffray

Yes, that is fine. Thank you.

William Ding

Thank you.

Operator

Next we will move to Wallace Cheung - CSFB.

Wallace Cheung - CSFB

Hi, William, Denny and Michael. A very good quarter, congratulations. My one question is actually directed to William. May I just ask in Mandarin and then translate into English?

[Question in Mandarin]

My question is actually to William Ding. I am asking his question in the online game industry, in particular if the growth and any kind of a [inaudible] and any investments planned in the casual games. Thank you.

William Ding

[Response in Mandarin]

Michael Tong

Now I will translate William's answers to Wallace's question. First is that William believes that there are still a lot of opportunities in the online gaming market in the future in China. Especially in the casual games and also of course in [inaudible].

Our advantage, main advantage in this particular industry is that we have very good quality of research and development. We have also accumulated a lot of experience in terms of developing our good games. We also have a very good first position platform for distributing our games and also our [card] in the China markets.

William's views on the government is that the government is very supportive and open to the industry. [Inaudible] we also agreed and also very supportive to the anti-theft systems which are targeted towards gamers who are underage and restricting them to play three hours for every section.

Wallace Cheung - CSFB

Thank you.

William Ding

Thank you.

Michael Tong

Thank you.

Operator

Moving on, we will take our next question from Richard Ji with Morgan Stanley.

Richard Ji - Morgan Stanley

Hi William, Michael and Denny. A very strong quarter. I have one question directed for William. Allow me to ask my question in Cantonese.

[Question in Cantonese]

William Ding

[Response in Cantonese]

Michael Tong

In translation, for Datang we started our internal [inaudible] in September of last year, 2005 and it is now actually under external code status. We have now around 100,000 accounts in terms of the total number of accounts for the external code status. Since last year, in September, we have got different kinds of information from our players for the game and we have been able to see the playability of the games are not as good as we had expected. This information from the players, we view that game life cycle might be short and the playability is not as good as what the players think.

So during this period of time we have been adding different kinds of content into the game, including different maps, changing the characters different attributes, adding more stories and so on and so forth in order to make sure that the life cycle of the game will be very long.

For example, in Westward Journey II our life cycle of the game is very long and it is critically longer in terms of market. So we are hoping by changing a lot of the attributes we can extend the life cycle when the game is being launched. We are looking forward to an open beta launch in the second quarter of '06 and our game is a little bit different because the open beta, with all of these changes our open beta will be comparatively shorter than other popular games out in open beta. Thank you.

Richard Ji - Morgan Stanley

Thank you.

Operator

Moving on, we will take the next question from Frank Shi with CLSA.

Frank Shi - CLSA

Hi, good morning, guys. Can you talk about the growth prospects for your online advertising business? [Translation not available]

Denny Lee

For the advertising growth in '06, we think that we will be able to beat the market, the overall markets, because the advertising business, the base is actually a little bit smaller than our competitors. For 2005 we have been going up in the market. To give you some figures, we have in the branded advertising, we believe our market share has grown from 12% to around 14%, because we haven't gotten all of the numbers from [Ten Cents]. Definitely a growth from 12% to around 14% in 2005. We believe the growth of our company will continue to pick up a bit more market share in the overall branded advertising markets. So that is for the branded advertising markets.

For the research market, I think we are still a very small player right now and we have yet to see how we can try to grab a bit more market share.

Frank Shi - CLSA

Thank you.

Operator

Your next question is from Dick Wei - JP Morgan.

William Ding

Hi, Dick.

Dick Wei - JP Morgan

Hi, good morning, William. I have a question on [inaudible]. I wonder, what is the plan for NetEase in terms of search engine and the plans in the future?

Michael Tong

Hi, Dick. We are now, for the search business obviously we are now partnering with Google. Our partnership with Google has been with us for more than one-and-a-half years right now, and we will continue to work with Google going forward. And of course, we will continue to seek different options on search when the time is right.

Dick Wei - JP Morgan

Okay, thanks.

William Ding

Thanks.

Operator

We will take our question from Lu Sun, Lehman Brothers.

Lu Sun - Lehman Brothers

Hi, William, Denny and Michael. I have a question on your longer term strategy with Internet entertainment. I think William actually mentioned at one of the industry conferences that NetEase is also interested in exploring the home entertainment market. Can you elaborate on that?

[Question asked in Mandarin]

William Ding

[Response in Mandarin]

Michael Tong

I will translate on this. For the home entertainment, there has been some reports that William said in the industry conference that we have some plans for the home entertainment and this home entertainment, other people have implied that -- Fox or something -- but the truth is that the reporter has given a kind of misleading report, and the truth is that we have no clear plans to enter China's home entertainment company. We will continue to look at and be very serious in looking at this possibility of home entertainment. There is no definitive plan.

Lu Sun - Lehman Brothers

William and Michael, can I ask a follow-on question. It seems like your casual game business is not as strong as some of your competitors, let's say Tencent or even SINA. Are there any solid plans to really represent this business and really make it the top casual game platform in China?

[Question asked in Mandarin]

William Ding

[Response in Mandarin]

Michael Tong

We believe that the casual game market has great potential in China, and we are actually also advertising and put quite an amount of resources in developing this market. In more specific terms, we are developing a second generation of the game engine that we are developing right now, and with this engine we believe that we will be able to develop better casual games in a much faster way than we have been and also compared to the market. We are still very confident that we will be able to do very well in the casual game market, just like the way we have done it in the MMORPG market. Thank you.

Operator

Your next question is from William Bean with Deutsche Bank.

William Bao Bean - Deutsche Bank

A couple of questions. First off, just wondering whether you can give us an update on how your promoter network is doing, especially in the second tiered cities. Give an update on whether there are any changes there, whether you are seeing any competition from other players or your promoters?

Michael Tong

Hi Bao, how are you? The game promoters I think you are talking about, the friends recommending friends systems that we have been using for the past two years, right?

William Bao Bean - Deutsche Bank

Yes, I mean changes there, yes.

Michael Tong

Actually during the past two or three years there has been a lot of people trying to kind of copy or get inside this business with other similar systems. So far, as far as we understand, none of our competitors have been able to develop such a program in the way we have developed it. Mainly because I think we have managed the program, we have put a lot of resources in defining the properties with the game promoters and we have also -- it is a system that we have been running for more than three years. The system has been very well developed and the policies, how we manage the promoters, how we educate them, teaching them to promote our games and all of these things are things that are difficult for our competitors to catch up.

William Bao Bean - Deutsche Bank

Okay, thanks. Can you give us a sense of how we should think about your expenses over the course of '06 as you launch your game?

Denny Lee

You mean marketing expenses, or --?

William Bao Bean - Deutsche Bank

Yes, your marketing related expenses. Margin as well, if there is going to be any change there.

Denny Lee

Actually, the launch of the games, of course in terms of the marketing expense there will be a small increase in terms of the marketing expense, but this small increase is actually a little bit immaterial to the overall Company picture. In the history of NetEase we have never put too much marketing expense or the launch of games, as you can see in the launch of Westward Journey or Fantasy Westward Journey. This will continue to be the same. The traffic is there because we are a portal. Actually a lot of the marketing and advertising can be done through our portal, all of this traffic that we have at basically no cost to us.

Operator

Moving on, we will take the next question from Antonio Tambunan with Bear Stearns.

Antonio Tambunan - Bear Stearns

Hi guys, congratulations on a great quarter. A quick question on follow-up to a couple of questions that were asked earlier. On the casual game platform, I know you mentioned your R&D development. When do you actually expect to see some kind of a meaningful revenue contribution? Is it going to be some time in late '06 or is it something that is going to happen in '07?

Michael Tong

I think it is not right to answer in any meaningful way right now. We just cannot answer on this.

Antonio Tambunan - Bear Stearns

Okay not a problem. Also a follow-up on the cost question. 2.5 and 3D games you have mentioned before, generally are a lot more expensive to operate. So therefore the impact on gross margin, how big of a margin change or decrease in gross margin would you expect from something like that?

Denny Lee

I will take the question. On the next generation games, the cost of branding the game is a little bit higher than the traditional 2D games. For example, the 2.5D and 3D games we expect that there will be a 1% to 2% higher margin, the cost of running the 2D game is 1% to 2% higher than the more traditional 3D game. So I would expect when the revenue contribution from the next generation game is more meaningful in our Company, then there will be a bigger margin impact. And if for 2006, because the majority of our revenue is contributing or coming from the existing two titles. There will be some scalability. I think 2006 the margin will not be impacted by much.

Antonio Tambunan - Bear Stearns

Okay, thanks. My last question is, in light of your plans to build up in your R&D, a lot of the Korean and American companies, especially in the most recent quarter, in calls, they have been talking about building out. Using China either as the creative development base or as the back end programming side. Do you see any kinds of problems on the recruitment side, especially since you are the top developer? Is there going to be any pressure to find talent and if there is, is there going to be any pricing pressure on the talent like we saw back in the original dot com days?

Michael Tong

Recruitment has always been a very important area that we have been focusing on. We have already three years of recruitment, countrywide tours to different universities and colleges to recruit our game staff. We have a very good training program for all of these guys and we have quite a bit of experience in recruiting people and training them to become a very important vehicle to develop our games.

I think with our presence in the online game industry, being the #1 in terms of MMORPG and the Company itself, I think we have been very competitive in being able to recruit very good people into our Company.

I think the competition does not really come from what you said, the foreign competitors, partly it could be because of Google or Microsoft or something, who are extending their presence in China. We are very mindful on that and we will continue to work very hard recruiting the best people for the Company.

Operator

Next up is Ming Zhao; Susquehanna Financial Group.

Ming Zhao - Susquehanna Financial Group

Thank you. Good morning, gentlemen. I just have a question, could you give us some color on the life cycle of the existing two games? I remember, Michael, you said that the Westward Journey Online II would probably peak in the near term. I just wonder on an update of your thoughts about Fantasy and Westward Journey Online II. When would you think there would be a peak? Then I have a follow up.

Michael Tong

Let me explain a little bit. From the experience that we have, of course as others I mentioned, it depends a lot on the content we are able to put into the game. If it is a good content, then we will be able to extend the life cycle a bit further. From past experience we have, for example like with Journey II Online, the growth of the fourth quarter has picked up again compared to the third quarter. It was just one quarter ago I think everybody said what they were going to do online, it is going in a down trend.

So I think it depends on the content of the games, and so far we have been able to develop the good content and be able to extend the life cycle. But exactly when, it is difficult to say. We cannot guarantee anything.

William Ding

I think there is time to take one more question.

Operator

Thank you. The last question will come from Tian Hou with C.E. Unterberg.

Tian Hou - C.E. Unterberg

Hi, everybody. I have a question. Your --

Operator

Ma'am, pardon me. This is the operator. We are having some trouble hearing you.

Tian Hou - C.E. Unterberg

I am here. First question, you have a lot of cash. Where do you plan to use it?

[Question asked in Mandarin]

William Ding

[Response in Mandarin]

Tian Hou - C.E. Unterberg

[Question asked in Mandarin]

I don't think I get it correctly.

[Question asked in Mandarin]

William Ding

[Response in Mandarin]

Tian Hou - C.E. Unterberg

Okay.

William Ding

[Response in Mandarin]

Michael Tong

Let me do the translations. The question was, I think it was when are we going to have the commercial launch for Datang. The answer is that we just won't be able to answer exactly when it is going to have the commercial launch. William answer in a more indirect way. He said, from our previous experience that the Fantasy Westward Journey, we had spent about five months time in the open beta and also for Westward Journey Online II which was a previous product, we spent around three months in the open beta. The reason we have shortened the open beta for Datang is because the game itself has been very well refined when we set up the open beta, and it is a very short open beta.

Tian Hou - C.E. Unterberg

I have a follow-on question.

[Question asked in Mandarin]

William Ding

[Response in Mandarin]

Michael Tong

The question was if we didn't have any problems if we have such a close time in launching the open beta for the two games together. The answer is that because we are targeting a different demographics for the two games -- for example, for Datang it is similar to what users who have a lower hardware requirement. For Tianxia the hardware requirement is much higher and also in terms of, that we will target different geographics and also different profiles and users and players. So we believe that even that there is a very close period of time in launching open beta for both games, because they are different profiles we don't expect to have a lot of problems.

For example, for Fantasy Westward Journey we also thought about that, as a matter of fact the user growth of Westward Journey II Online when we launched the game, but also because we are targeting at different profiles of users. The impact from Fantasy Westward Journey was very immaterial. We believe there shouldn't be any problem in launching the open beta for the two games at a very close time.

Brandi Piacente

Okay, everyone. Again, thank you for joining us today. Please feel free to contact us if you have further questions. Have a good day.

William Ding

Thank you.

Michael Tong

Thank you very much.

Denny Lee

Thank you.

Operator

Once again, everyone, this will conclude this NetEase fourth quarter fiscal year 2005 earnings conference call. Thank you all for joining us today.

Transcriber's Note: CEO William Ding is not proficient in English. I did the best I could comparing his opening remarks with the company's press release but it has quite a few gaps. The rest of the time he spoke in Mandarin or Cantonese and it was translated for him.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Netease.com Inc Q4 2005 Earnings Conference Call Transcript (NTES)
This Transcript
All Transcripts