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Executives

Joanne Deng - IR Manager

Michael Chi - Chairman & CEO

Robert Xiao - SVP

Vivien Wang - VP, IR & Corporate Communications

Kelvin Lau - CFO

Analysts

Mark Marostica - Piper Jaffray

Eddie Leung - Merrill Lynch

Muzhi Li - Citigroup

Timothy Chen - Morgan Stanley

Jin Yoon - Nomura

Adam Krejcik - Roth Capital Partners

Andy Yeung - Oppenheimer

Thomas Chong - BOCI

Martin Bao - CICC

Atul Bagga - Lazard Capital

Perfect World Company, Ltd. (PWRD) Q2 2012 Earnings Call August 27, 2012 9:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Perfect World 2012 Q2 earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) I must advise you this conference is being recorded today 28th of August, 2012.

I would now like to hand the conference over to your first speaker today, Ms. Joanne Deng, Investor Relations Manager for Perfect World. Please go ahead, Ma’am.

Joanne Deng

Thank you operator and thank you everyone for joining us today for Perfect World’s second quarter 2012 earnings release conference call. We distributed our unaudited earnings release earlier today. You may find a copy of the press release on our official website or through the newswires.

Today, you will hear from Mr. Michael Chi, our Chairman and CEO, who will give us a brief overview of the quarter and will make an important announcement of the company. After that we’ll provide a brief update on our business. Then Ms. Vivien Wang, our Vice President of Investor Relations and Corporate Communications will take us through some of our latest operational developments. And then she will pass the call to Mr. Kevin Launch, our CFO, who’ll take you through our financial performance in the second quarter of 2012. Following the prepared remarks, Mr. Chi, Mr. Lau and Ms. Wang would be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectation. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the SEC, including our annual report on Form 20-F.

For more information about these risks and uncertainties, please refer to our filings with the SEC. Perfect World does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Our earnings release and this call include discussions of certain non-GAAP financial measures. Our earnings release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on our website at www.pwrd.com under the Investor Relations section.

I would now like to turn the call over to Michael.

Michael Chi

Thank you, Joanne. Thank you all for joining our call today. Our second quarter results were in line with our previous expectations. During the quarter, we continued to work on developing and releasing our variety of expansions packs and the content enhancements which are part of our consistent efforts to maintain healthy lifecycles for existing games. At the same time, we also continued to focus on the development of the new games in our deep and diverse pipeline.

In July, we unveiled Legend of the Condor Heroes, a new 3D MMORPG which is currently under development. This game adapted from novel of the same name by the highly acclaimed martial arts author Louis Cha. We have also adapted another game from Mr. Cha’s well known martial arts novels Return of the Condor Heroes which we are scheduling for launch soon this year.

In addition to these titles our development teams continue to work on highly anticipated MMORPGs, Swordsman Online and the Saint Seiya Online, as well as a number of other games from our pipeline. With these existing upcoming titles, we look forward to delivering more high quality entertainment to our gamer worldwide.

I am pleased to announce that in order to further enhance our executing capabilities, we have decided to create a new senior management position; Co-CEO and promote our COO, Mr. Robert Xiao, to this new leadership position. In his new role, Robert will mainly focus on the execution of our business strategies through further enhancing the effectiveness and the efficiency our operations. I will remain the Chairman of the Board of Directors while taking the new Co-CEO position, and primarily focus on setting strategic directions for Perfect World to capture new growth opportunities in this fast changing industry.

Looking ahead, we will remain focused on the growth of our business and continue to generate value for our shareholders overtime.

Thank you. Now I will pass the call to Robert.

Robert Xiao

Thank you, Michael. Hello everyone, I am very excited to take the new role in the company that will allow me to work closer with our management and talented staff across the world to help lead our business to evolve into a global leader in online gaming industry. Through the great effort of the team, I believe that we have build a very successful presence in overseas markets; while in addition to our strong pipeline that Michael just mentioned, our well established development team across the world is another key differentiating factor in our industry.

Our specialized studios overseas not only further strengthen our R&D capabilities, but also add world class titles to our robust pipeline. For example, our Cryptic Studios in the Bay area in US is currently developing highly anticipated MMOPRG called Neverwinter. All of our global development assets are playing an important role in our path to become a leading gaming online gaming company.

Of course another important part of our globalization strategy is our strong operational capabilities in overseas markets. During the second quarter, we continued to make good progress in both of our subsidiaries and licensing activities. We are confident that our global development capability combined with our global operating capability through our owned subsidiaries in North America, Europe, Japan as well as our overseas partners will continue to strengthen our presence in the global market.

Well, before I pass the call to Kelvin to write over the financials, I will give the call first to Vivien who will take you through some important key points for recent development in both China and overseas. Vivien?

Vivien Wang

Thank you, Robert. To lengthen the lifecycles of our existing games and ensure the long-term sustainability of our business, we continue to work on developing expansion packs and further enhancing content for the games in our portfolio.

During the quarter, we released several expansion packs including Tournament of Warrior Couples for Dragon Excalibur, Dance of Lucky Stars for our 3D online casual game, Hot Dance Party, Fantasy Zhu Xian 2.0 for Fantasy Zhu Xian, Scroll of Time Travel for our flagship title Zhu Xian and Legendary Heroes for Empire of the Immortals.

Recently, we also released expansion packs Peach Blossom Wonderland for Legend of Martial Arts and Chi Bi Heroes for Chi Bi.

Earlier, Robert spoke about our [commencing] overseas markets and we saw some good developments from our teams abroad. Our Japanese subsidiaries send an agreement to offer a 2D action MORPG, Dark Blood in Japan.

We also continued to make progress in our licensing business. We launched the Dragon Excalibur in Vietnam as well as Forsaken World in Brazil and Thailand through our overseas partners.

Meanwhile, we further expanded our geographical reach to more countries by licensing both Battle of the Immortals and Empire of the Immortals in Turkey and Azerbaijan recently.

We believe our combination of strong global R&D team, a diverse portfolio and pipeline and an extensive global operating network will serve as long-term catalyst for our growth.

As always, we remain committed to delivering innovative high-quality titles to entertain gamers in China and across the world.

I’ll now pass the call over to Kelvin for a review of our financials.

Kelvin Lau

Thank you, Vivien. Now for the second quarter 2012 financials. Total revenues were RMB676.4 million in 2Q12, compared with RMB718.5 million in 1Q12 and RMB779.6 million in 2Q11.

Online game operations revenues, which include both domestic and overseas online game operations were RMB626.4 million in 2Q12, compared with RMB665.1 million in 1Q12 and RMB712.1 million in 2Q11. In the second quarter, there were no major new launches and in order to lengthen the life cycles of existing games and maintain long-term sustainable growth, we continued to focus on preparing for upcoming new games launches and further enhancing the content of our portfolio.

ACU for games under operation in mainland China was approximately 739,000 in 2Q12 compared with 804,000 in 1Q12 and 890,000 in 2Q11. The decrease from 1Q12 was mainly due to more stringent anti-cheating efforts we adopted during the second quarter.

Licensing revenues were RMB46.9 million in 2Q12, compared with RMB49.2 million in 1Q12 and RMB61.8 million in 2Q11. The decrease from 1Q12 was mainly due to a decrease in usage-based royalty fees in certain overseas markets in 2Q12.

Other revenues were RMB3.0 million in 2Q12 compared with RMB4.2 million in 1Q12 and RMB 5.6 million in 2Q11.

Cost of revenues was RMB126.6 million in 2Q12, compared with RMB127.1 million in 1Q12 and RMB113.7 million to 2Q11. Gross profit was RMB549.8 million in 2Q12 compared with RMB591.4 million in 1Q12 and RMB665.9 million in 2Q11.

Gross margin was 81.3% in 2Q12, compared with 82.3% in 1Q12 and 85.4% in 2Q11. Operating expenses were RMB394.6 million in 2Q12, compared with RMB356.6 million in 1Q12 and RMB345.5 million in 2Q11. The increase in operating expenses from 1Q 12 was mainly due to the increases in sales and marketing expenses, R&D expenses and G&A expenses in 2Q12.

R&D expenses were RMB189.7 million in 2Q12, compared with RMB179.4 million in 1Q12 and RMB161 million in 2Q11, the increase from 1Q12 was primarily due to an increase in staff cost. Sales and marketing expenses were RMB121.8 million in 2Q12, compared with RMB101.4 million in 1Q12 and RMB121.4 million in 2Q11.

Advertising and promotional expenses were reduced to a lower level in 1Q12 as the Company typically slowed down promotional activities during Chinese New Year.

G&A expenses were RMB83.1 million in 2Q12 compared with RMB75.8 million in 1Q12 and RMB63.1 million in 2Q11, the increase from 1Q12 was mainly due to an increase in professional fees.

Operating profit were RMB155.2 million in 2Q12 compared with RMB234.8 million in 1Q12 and RMB320.4 million in 2Q11. Non-GAAP operating profit was RMB 172.5 million in 2Q12, compared with RMB256.6 million in 1Q12 and RMB348 million in 2Q11.

The income tax expense was RMB33.1 million in 2Q12, compared with RMB47.8 million in 1Q12 and RMB38.6 million in 2011. The decrease from 1Q12 was primary a result of the change in operating profit in 2Q12.

Net income attributable to the Company’s shareholders was RMB158.2 million in 2Q12, compared with RMB209.8 million in 1Q12 and RMB316.6 million in 2Q11. Non-GAAP net income attributable to the Company’s shareholders was RMB175.5 million in 2Q12, compared with RMB231.6 million in 1Q12 and RMB344.3 million in 2Q11.

Basic and diluted earnings per ADS were RMB3.28 and RMB 3.25 respectively, this compares to RMB 4.52 and RMB 4.38 respectively in 1Q12 and RMB6.3 and RMB5.98 respectively in 2Q11. Non-GAAP basic and diluted earnings ADS were RMB3.64 and RMB3.6 respectively in 2Q12, as compared to RMB4.99 and RMB4.83 respectively in 1Q12 and RMB6.86 and RMB6.5 respectively in 2Q11.

In terms of financial guidance based on our current operations, total revenue for the first quarter of 2012 I expected it to be between RMB643 million and RMB676 million, representing a flat to slight decline from second quarter of 2012. Our upcoming new game “Return of the Condor Heroes” is scheduled for launch toward the end of the third quarter or in the fourth quarter. As such, we do not expect a significant revenue contribution from this game in the third quarter.

This concludes our prepared remarks for the today. We’re happy to take your questions now. Operator, we’re ready for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Mark Marostica with Piper Jaffray.

Mark Marostica - Piper Jaffray

The first question I have is related to your game launch schedule. Could you talk about what your plans are for Q3 and for Q4 and then also give us a heads up of what 2013 is like in addition to obviously Return of the Condor Heroes that you just mentioned?

Michael Chi

Yeah, thank you Mark. That's why I mentioned, that we're going to launch the Return of the Condor Heroes, which is a 2-D game towards the end of the third quarter or fourth quarter. And then in the coming year, according to our current schedule, we have approximately four games, above four games we are going to launch. The first one is the (inaudible) online, which is scheduled to be launched in Q2 next year and then our biggest game, Swordsman online, according to the schedule right now is, the game is going to be launched in Q2 or Q3 in the coming year. And then the third one as what Robert mentioned in his remark is the Cryptic's new game, the Neverwinter.

According to games prepared, according to the (inaudible) I think the games will be launched in Q2 in the coming year, Neverwinter in US first. And then the final one is the Legend of the Condor Heroes, which we announced I think last month, which is our 3D martial arts games, also based on Louis Cha's famous novel. This game, according to our plan right now, this game is expected to be launched in the second half of next year.

Mark Marostica - Piper Jaffray

And then a follow-up question. You commented on to your anti-cheating efforts in Q2. I am curious if those efforts are behind you now or if we should expect the lingering impact of those to be in Q3 as well.

Michael Chi

Martin this type of anti-cheating activities I think we keep on doing I think will be depending all those (inaudible) or cheaters in the game. So we will continue to -- based on the situation I think if they are so many cheaters or [robbers] in the game we will continue to adopt this type of any cheating activities in our games. Yeah especially for our games, yeah.

Mark Marostica - Piper Jaffray

So what's that, so I am just trying to get a sense of whether or not, it's sound like it was stepped up in Q2. Is it down to a more normal level now or how should we expect ACU to behave I suppose in Q3?

Michael Chi

I think ACU will be affected by several factors I think besides the anti-cheating activities and also affected by the seasonal factors. That's why I mentioned before I think during summer time normally I think some of the teenagers we've engaged in some of the social activities or summer jobs or traveling. So ACU may have some fluctuation in the coming quarter because of the summer vacation.

Operator

Our next question comes from the line of Eddie Leung with Merrill Lynch.

Eddie Leung - Merrill Lynch

Just one question. You guys mentioned I think in the quarter there was a decline in ACU, but on the other hand could you also tell a little bit about the trends you have seen on the ARPU side and then I also will like to see if you have any margin guidance for the second half of the year.

Michael Chi

In terms of the revenue per ACU -- I will prefer to use the terms revenue per ACU. Eddie if you calculate the total I mean the online game operation revenue divided by the ACU number, you will compare Q2 this year compared with Q1 this year. In fact this type of revenue per ACU number just increased by 2% only, so I will say the revenue per ACU, this metric have no significant increase adding or fluctuation in Q-over-Q.

The second question is the margin trend. Okay Eddie our policy is not to give any guidance on the margin. Okay this is our policy; we just give the revenue guidance for the following quarters. But I think the follow up question we will give you some color, yes, okay. That's why I mentioned; okay we are going to (inaudible) which is going to be launched towards the end of Q3.

So we expect it to incur more sales and marketing expenses to promote Return of the Condor Heroes plus Zhu Xian and Perfect World too we have expansion pack which will be launched the towards end of Q3 and also we incur some sales and marketing expenses in the China (inaudible) in summer time this year. So I will expect that sales and marketing expenses will grow further little bit in Q3. But we are trying to cut through the R&D expenses and G&A expenses. I think there will be (inaudible) in the G&A expenses.

Operator

Our next question comes from the line of Muzhi Li with Citigroup.

Muzhi Li - Citigroup

Just wanted to follow up with the ACU decline. Do you see the ACU decline mainly because of the seasonality or your anti-cheating cracking down or is it because of lack of the update of the game that the users you know leading to the user fatigue and I have a follow up question.

Michael Chi

We believe the decline issue is mainly because of the anti-cheating activities we adopted in the second quarter and also because of the seasonality. I think in Q2 because of the examination season. So normally we see it drop a little bit. And another minor reason is some of the small games like Legend of Martial Arts and also Immortals and the ACU numbers I think are a little bit declined, it is true.

Muzhi Li - Citigroup

I see and also regarding the saturation of MMORPG gamer population, what has the Perfect World trying to counter the user saturation and how to acquire users to meet the new gaming pipelines in the future?

Unidentified Company Representative

[Foreign Language]

Michael Chi

I think right now you can see in the market MMORPG still has captured the largest amount of share in the market. So for upcoming games we are trying to launch more different titles you can see. Going forward we emphasize on, for Swordsman Online some martial arts Louis Cha's title and also we have Neverwinter in US in different territories to try to capture more users in different territories and also we have another Japanese titles in Seiya which is being developed by our Beijing (inaudible) have been very different from the martial arts style. This is I think quite new to the gamers try to attract a new segments of gamers. So you can see we’re trying to more diversify our games in terms of titles, in terms of game context, try to attract even more and different gamers.

Muzhi Li - Citigroup

One last question, when will you start to launch web game and the mobile game?

Kelvin Lau

Web game, in fact we already launched one web game already in China, not a success, but I think we already started the project. In fact, we are planning to launch more new games going forward and we expect to have one to two web games going to be launched in Q4 this year. So probably we’ll announce what type of web game we’re going to launch.

Operator

(Operator Instructions) Our next question comes from the line of Timothy Chen with Morgan Stanley.

Timothy Chen - Morgan Stanley

I have a question on the sequential performance of your four titles in the second quarter; which games were doing better than the others and I have a follow-up question? Thank you.

Kelvin Lau

Tim, so I think Q2, Perfect World II performed better; Perfect World’s II performance in Q2 is better than Q1 that’s why I mentioned before we launched the expansion for that in late Q4 last year, so we didn't do so many monetization for Perfect World II in Q1 this year, so we started monetization of Perfect World II in Q2.

On the other hand, Zhu Xian dropped a little bit in Q2 because we did monetization to this in Q1 because we launched a big expansion for Zhu Xian in Q3 last, so we did the monetization of Zhu Xian in Q1 and then we stopped the monetization of Zhu Xian in Q2, so I think Zhu Xian dropped a little bit and then Perfect World II up.

Vivien Wang

We also announced the expansion packs for Zhu Xian in Q2 and typically before the launch of expansion packs the traffic and the revenue could be down a little bit, because gamers are waiting for the new titles.

Timothy Chen - Morgan Stanley

Can I also get an update if any on your share buyback program, if that (inaudible)? Thank you.

Kelvin Lau

Up till now we don't have any share buyback program on the table or approved by the Board.

Operator

Our next question comes from the line of Eddie Leung with Merrill Lynch.

Eddie Leung - Merrill Lynch

Just one quick question, could you qualitatively talk about the performance of your overseas direct operations like CNC your US operations in the quarter as far as perhaps any qualitative guidance for the rest of the year? Thanks.

Michael Chi

Our overseas operation, in US it isn’t quite stable right now. There is no major fluctuation in terms of revenue for US and our Europe operations. So what we are doing for US is now is we are waiting for our big title Neverwinter which will be launched in Q2 in coming year, so by that time we expect US and Europe performance will have upside after we launched Neverwinter in the coming year.

So in Europe, I think especially in Europe I think we are happy with the performance of the European performance because more games take for example recently in Q2 we launched Star Trek online in Europe, so Europe in fact have some upside, but I think compared with whole group Europe it’s still small right now. We are optimistic with our operations in US and Europe I think its quite confidence in overseas.

In Japan market, Japan market a little bit quite stable I would say, because Japan also the situation is waiting for our big titles going to launch in China, then we can launch it in Japan, again in the upcoming year when we launch the Swordsman Online and also we launched Neverwinter then Japan will benefit a little bit after we launch big titles, so definitely it’s waiting for our new games.

Operator

Our next question comes from the line of Jin Yoon with Nomura.

Jin Yoon - Nomura

Hi, my questions have been answered. Thank you.

Operator

Our next question comes from the line of Adam Krejcik with Roth Capital Partners.

Adam Krejcik - Roth Capital Partners

I just had one question; one of your largest shareholders now is focused on investments, I am just curious have they spoken with management yet regarding providing any input in terms of strategic direction for the company and whether or not they had discuss any alternative issues like privatization which seems to be a popular theme right now? Thanks.

Kelvin Lau

I think so far the biggest shareholders for Perfect World is Michael Chi at present, is number one. Number two is till now we didn't have any discussion or talk with Fosun regarding any strategic corporation or so called acquisition plan, I think no, there is no discussion between Perfect World and Fosun.

Adam Krejcik - Roth Capital Partners

Can you remind us what position Michael owns right now?

Vivien Wang

Michael owns around 18% of the company.

Operator

Our next question comes from the line of Andy Yeung with Oppenheimer.

Andy Yeung - Oppenheimer

My question is also about your upcoming games; can you give us some colors on the progress of Heaven Sword and Dragon Saber and also any expansion pack in the coming quarters?

Michael Chi

For Heaven Sword and Dragon Saber is what we mentioned in the previous earnings call, Heaven Sword and Dragon Saber is not very successful after we launch this 2D game, what we believe is I think right now in China the 2D game market becomes smaller and smaller it is contracting. So what we are doing now is we are trying to get use of the resources in the Heaven Sword and Dragon Saber and tried to convert the context and come up with a new web game based on the Heaven Sword and Dragon Saber titles.

So I think for this question some investors are also interested in our web game program. So what I can say is (inaudible) intensely but we're trying to launch our web game version, most probably I think by the end of this year we will launch web game version for (inaudible).

Andy Yeung - Oppenheimer

Got it, okay and just a follow-up question on the game development pipeline. There seems to be a gap emerging in your product life cycle recently. What's your view in term of [fostering] your portfolio through licensing games?

Unidentified Company Representative

[Foreign Language]

Vivien Wang

Our goal is to evolve into a global leading gaming company and provide best quality products and services to our games over the world, that's so we are dedicate to continuing to develop best [titles] to our players, and we do hope every single game that we launch would be successful and we are confident in our capability to develop more successful games for our gamers. At the same time, we don't rule out possibilities and to licensing [blockbuster] titles for our gamers.

Michael Chi

One point to add is, I think in US and also in Japan we already started to license some foreign games to operating in US, in US we already licensed Rusty Hearts, RaiderZ and Blacklight. So going forward, I think our objectives turn to the more diversified our game portfolio that's why I think not only continues our MROP we are looking on web game. So I think going forward we expect to be have more web game to be launch in fact we have special teams right now in China here working on some web games already.

Operator

(Operator Instructions) Our next question comes from the line of Thomas Chong with BOCI.

Thomas Chong - BOCI

I have a quick question regarding the third quarter guidance, you guys (inaudible) to 5% sequential decline, can management provide some color about the performance of the key titles in the third quarter, which games do you think were likely to suffer sequential decline and which games are likely to have a sequential growth? Thanks.

Michael Chi

I think regarding the guidance, we are not going to give any breakdowns on I think the games performance in Q3 but I think in terms of some color I can tell you that referring to my remarks commencing that this year our focus is trying to lengthen or stabilize our existing games like [Zhu Xian] and also we say that we have another big expansion type of Zhu Xian and also have a big expansion (inaudible) which will be launched in September or October, so we dare not to do so many monetization for these two core games (inaudible) and Zhu Xian in Q3 before the launch.

So that’s why our forecast for Q3 is trying to maintain the regular performance for our existing games. What we are looking for right now is we are waiting for our new game, that’s why I said Return of the Condor Heroes is going to be launched towards the end of Q3 or early Q4. So I hope, we will hope to see that Return of the Condor Heroes again have some meaningful revenue contribution in Q4 and going to the coming year so we have four new game launch, we hope to see that we are going to be nice revenue growth in the coming year.

Michael Chi

Thanks I will get back to the queue.

Operator

Our next question comes from the line of Martin Bao CICC.

Martin Bao - CICC

I have a question regarding the [client] game as we see our competitors are moving into some new areas of [client] game like micro-clients and cloud gaming. I am wondering whether the Company gain share was, whether that’s your view on this new trend? Thank you very much.

Vivien Wang

[Foreign Language]

Unidentified Company Representative

[Foreign Language]

Vivien Wang

Micro-client game is a way to provide more convenient and easier access to game for players. Right now, this kind of game is picking up quickly in the market and we are developing some of them currently. In terms of cloud games, currently we do not have such projects under development, though we don't really contribute to in this area as well. Currently we are more focused on the web games and going to launch some games, some web games.

Martin Bao - CICC

Thank you very much and just one very quick follow up, I'm wondering what the percentage of the overseas revenue of our total revenue?

Vivien Wang

Overseas revenue already contributes more than the quarter of our total revenue.

Operator

Our next question comes from the line of with Lazard Capital.

Atul Bagga - Lazard Capital

A quick question for you on web game and strategy; you mentioned you launched a game which was not very successful. Can you talk a little bit about what were those earnings and what are you guys doing different with the upcoming web games? Beyond 2012, I mean how do you see the overall gaming market, MMO versus web versus mobile and in terms of few resources, how are you reallocating resources in these different segments of gaming business?

Unidentified Company Representative

[Foreign Language]

Michael Chi

Yes, the first web game we launched in the market was not that successful because it is the first product -- I think the first product we participated in this sector. So we keep on learning. I think the first one we launched were 2-D web games. I think our advantages on participating in the web game market is we have a lot of resources which we can use I think in the web game. Sometimes I mentioned for the Heaven Sword and Dragon Saber which is a 2-D game.

We can get use of all these 2-D MMORPG games materials and put it into the web game. We can I think launch Heaven Sword and Dragon Saber web game title fast and quickly. So and also based on the experience I think we are confident okay we can do it better. I think going forward what we are looking at web game market is we are adding is a 3-D web game set ups.

So in the web game set up we have some 3-D web game which is under development and out. In terms of our views on the web game market going forward. I think – I will tell you if you look at some of the analyst report, in the upcoming 3 to 4 years I think still MMORPG captured the largest market share, above 60% to 70% by 215 or 216.

And then the remaining 30% to 40% will be captured mobile games or web games. So I think based on this type of forecast we still believe that I think going forward the main trend is still MMORPG, I think but web game is going fast. That's why we need to participate in this sector we are learning and also keeping close eyes on 3-D web game market going forward.

Atul Bagga - Lazard Capital

And Kelvin, one quick question on the overseas licensing revenue. In the last quarterly call, you talked about some seasonality which kind of brought overseas licensing revenue down. We saw another sequential decline in overseas licensing revenue, should we see this as a benchmark for future products?

Kelvin Lau

Atul, it's good question. Yes because right now the key issue for overseas licensing business is we don’t have any big game launch in China. I think normally we launched games in China first and then we licensed it to all those Southeast Asia countries, also in Korea.

So in the past two years, we don’t have any big title launch in China. That’s I think the key reason why the overseas revenue do not shift big growth in the past two years. So what we are waiting for is Swordsman Online, Neverwinter. Then after these two games launch that’s why I said we are confident that our overseas revenue will have a rebound after we launch these big titles.

Operator

(Operator Instructions)

Joanne Deng

Operator, are we seeing more questions.

Operator

And there seem to be no further questions and I will now hand the call back over to Joanne Deng for closing remarks.

Joanne Deng

Thank you. This is the end of the conference call. The webcast replay will be available at Perfect World's official website www.pwrd.com under IR section. If you have any additional questions please feel free to contact us.

Operator

And ladies and gentlemen, that does conclude today's conference call. We thank you for your participation. You may all disconnect.

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