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Executives

Rich Chang – IR Manager

Eric He – CFO

Yuzhu Shi – Chairman and CEO

Wei Liu – President

Analysts

Tony Gikas – Piper Jaffray

Alicia Yap – Citigroup

Eddie Leung – Merrill Lynch

Paul Keung – Oppenheimer

Gary Nae [ph] – UBS

Tam Chu [ph] – Tally Capital [ph]

Adam Krejcik – Roth Capital

Giant Interactive Group Inc. (GA) Q2 2008 Earnings Call Transcript August 28, 2008 8:00 AM ET

Operator

Good morning, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group's Second Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question.

Now, I would like to transfer the call to the moderator, Mr. Rich Chang, Investor Relations Manager of Giant Interactive. Please proceed.

Rich Chang

Good morning, ladies and gentlemen. Welcome to the second quarter 2008 earnings conference call for Giant Interactive Group. With me today are Mr. Yuzhu Shi, Chairman and Chief Executive Officer; Ms. Wei Liu, President, and Mr. Eric He, Chief Financial Officer.

As we proceed through our prepared remarks, we will refer to our results presentation which can be downloaded from our new Web site at www.ga-me.com. Following the remarks, Mr. Shi, Ms. Liu and Mr. He will be happy to take your questions.

Before we continue, I would like to remind that statements on this call that are not strictly historical in nature constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as “will” “expect” “anticipate” “future” “intend” “plan” “believe” “estimate” and similar statements and include among others statements regarding our continued effort to increase shareholder value through strategic investment and expansion of game content and features.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results of Giant to be materially different from historical results or from any results expressed or implied by such forward-looking statements.

These factors include, but are not limited to, risks and uncertainties related to the progress, timing, cost and results of game testing and product development, competition from other online game companies and the additional risks discussed in the filings with the Securities and Exchange Commission, including our annual report on Form 20-F filed on June 18, 2008.

All forward-looking statements are qualified in their entirety by this cautionary statement and Giant undertakes no obligation to revise or update this information to reflect events or circumstances after the date thereof. In addition, please note that references in this presentation to dollars refer to U.S. dollars. And now, I would like to pass the call over to Eric He, our CFO.

Eric He

Thank you, Rich. Good morning and good evening, everyone. Thank you for joining us today. As you will have already seen from our earnings release we have delivered another strong quarter with growth across the majority of our key financial and operating metrics.

As the Chinese online game market continues to rapidly expand we are committed to remain at forefront of this industry and to meet the demand of our players. Our long-term focus remains on keeping players engaged, taking a focus game development approach and enhancing both community bonds and players stickiness within our games.

We are pleased with our results and operational and strategic progress that we made during the second quarter and we believe we remain on track in executing our overall growth plan. Specifically, in the second quarter 2008, we continue to extend the popularity of our game ZT Online. We carry out open beta launch of Giant Online and we have been actively working to prepare other games in our pipeline.

Let me discuss some of our second quarter operational highlights as shown on slide 6. Our flagship game, ZT Online, continue to benefit from the positive reception of neighboring friends, expansion packs, as peak concurrent users climb to 2.1 million on April 26, a record in the industry at the time.

To maintain the popularity of this game, throughout the second quarter, we added new content and features to keep players and to further enhance stickiness, including addition of two new character roles and duplicate map system for bass barrel sequences.

As part of our strategy to continually update and enhance ZT Online our research and development team is currently in testing phase of new expansion pack, which will incorporate real-time strategy elements. We have also granted an exclusive license to VinaGame to operate ZT Online in Vietnam. We expect to begin beta testing in Vietnam in late September 2008.

In the second quarter, we launched Giant Online, our second internally developed game, online game, into open beta testing on March 28th. On May 3rd, Giant Online reached peak concurrent users of over 344,000. This open beta launch we have been busy collecting and analyzing player feedbacks and updating the game accordingly in order to increase Giant Online (inaudible) gamers.

We are now in preparation to enter into final open beta testing for Giant Online. And we will introduce additional content and features captivating to our target audience. As most of you know, we are currently in the process of tailoring two games to Chinese market, Empire Sports for which we obtained China operating rights from Empire of Sports Limited of Switzerland. And King of Kings 3 which we acquired the right of the games from Lager Network in Taiwan.

We are excited to continue our effort behind Empire Sports which is currently being optimized and tailored for Chinese audience. Some of the features we have added include anti-cheating, and anti-fatigue systems plus virtual maps based on the Chinese cities and other local contents.

We plan to launch a game into closed beta testing in China in the first quarter 2009. For King of Kings 3, our in-house development team has been collaborating with the developers at Lager Network in Taiwan to optimize the graphics of these 3D games and tailor the content to meet specific preferences of Chinese gamers.

Initially, King of Kings 3 was intended to utilize Lager Network server engine technology, however, in order to allow more concurrent user per shot we have made decision to run King of Kings 3 off of our proprietary China-based server engines whose technology platform is similar to that of ZT Online and Giant Online. As a result of this migration and addition of game plays suitable to local preferences.

We now plan to begin closed beta testing for the game in the first quarter of 2009. We believe the launch and benefits of game plays tailored to mainly Chinese gamers with potentially more users per shot. We will optimistically help us attract more players to the game.

We are also excited by the investment into 51.com, a leading Chinese online social networking service provider. We believe 51.com's expensive social network would offer us opportunities to grow the communities among our games and enhance our players' stickiness. For details of the transactions, please refer to slide 8.

As a result of our operational efforts, each of our four operating metrics for the second quarter remains robust as seen on the slide 7. Total active paying accounts or APA of 1.76 million represented a 41% year-over-year increase and almost 22% sequential increase over first quarter of 2008.

Going forward, we will continue to focus on APA's expansions in order to ensure long-term sustainable revenue growth as well as extending our lifecycle of our games.

Average Concurrent Users or ACU and Peak Concurrent Users or PCU grew over 20% and went 18% year-over-year respectively, mainly attributable to our marketing efforts and increased stickiness within the games.

Average Revenue per User or ARPU was RMB285.9 for the second quarter, although this ARPU numbers was 3% decrease year-over-year and 12% decrease sequentially. This was direct result of active paying accounts growing faster than revenue.

You can see on slide 10 our financial results. Net revenue increased more than 36% year-over-year to 73.6 million while net income grew almost 33% over the second quarter 2007 to 51.1 million. Our efforts to remain efficient and profitable are evident in our sustained solid margin levels.

Our gross profit margin was 88.6% and our net margin was 69.5%, both down slightly sequentially, but nevertheless in line with our historical performance. The slight decline in net margin was mainly attributable to increase in our operating expenses during the quarter which I will discuss next.

On slide 11, I would like to point out that our operating expenses for the quarter totaled 17.3 million, a 19% sequential increase, a 75% increase over second quarter of 2007. The rise in the operating expenses occurred as sales and marketing expenses increased to facilitate the promotion of both Giant Online and ZT Online.

And research and development spending rose as we increased staff compensation so that we can hire and retain the best talent in the business.

Basic EPS for the quarter was $0.21, up almost 24% year-over-year, and 5% sequentially. Similarly, diluted EPS per quarter was $0.20, up almost18% year-over-year and more than 5% sequentially.

On August 11th we announced a 150 million repurchase program pursuant to a 10b5-1 program to create value for our shareholders and to reaffirm our confidence in the long-term potential of Giant Interactive.

Moving on to slide 12, in terms of our balance sheet, cash, cash equivalents and short-term investment combined as of June 2008, declined to $835.3 million from $860.2 million at the end of first quarter 2008. This decline was mainly due to the payment of a previously declared dividend of $81.4 million.

Looking ahead, the rest of the management team and I remain confident in our long-term outlook and believe that we are faced with robust opportunities for growth. As we noted on the slide 14, initiative in the third quarter is the revising of our monetization features with ZT Online. Although this initiative will result in some near-term impact on our online game revenue, we believe this will be a calves [ph] for future growth in our user base.

In addition, as shown on the slide 15, we have lasso begun a market segmentation strategy by launching ZT Online Classic Edition. To recapture former players who preferred original monetization characteristics of ZT Online in 2006, we are happy to report that the classic edition has exceeded our expectations since its introduction to the market in July.

With a new monetization structure of ZT Online, and launch of ZT Online Classic Edition we have witnessed a higher degree of variability on the revenue generation of dollar gain. We expect this variability to continue throughout the third quarter and our current visibility for the third quarter is unclear. As a result, we will not provide top-line guidance for the third quarter 2008. However, we believe that the fourth quarter and long-term growth outlook remain robust.

Thank you for your time and I would like to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question will come from the line of Tony Gikas from Piper Jaffray.

Tony Gikas – Piper Jaffray

Hi, good evening, guys. Thanks for taking my questions. Could you just explain a little bit more about the revised monetization structure for the ZT Online, really what's happening there? And then as it relates to the third quarter are you implying that revenues will be down in the third quarter or do you – could they actually be flat to higher? And then I have a follow-up.

Yuzhu Shi

Okay. Let me first read the question first. (Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) For ZT Online revenue model – the changes that we've made on the revenue model basically in the past, the revenue generator were based on two factors. One is daily consumption of players where they purchase materials on the basis in order to create the items and then the second part is revenue generated through promotional in-game activity. In order to maintain the long-term health of the game, we've decided to reduce the number of promotional activities within the game and to encourage more daily consumption for sending. Nevertheless, these changes have advised negative impact on the third quarter revenue.

(Foreign Language)

(Interpreted) The changes that we have made we believe will provide a long-term growth potential for our company, especially in terms of our user base and active paying accounts. And so far since the changes were implemented in July, the feedback has been positive from our gamers. The second change that we made in our games is the launch of ZT Online Classic Edition, which is targeted towards effecting old users who preferred amongst decision [ph] features of 2006. These players prefer the game prior to features such as treasure box and have since – have not been playing ZT Online for over a year. So far the Classic Edition has received very positive feedback from our gamers and user numbers have exceeded our initial expectations.

(Foreign Language)

(Interpreted) The impact of all these changes should be taking place and should be felt primarily in the third quarter and by the fourth quarter we hope that the impact will be more normal.

Tony Gikas – Piper Jaffray

Okay. I have a couple of quick follow-ups then. When do you expect to fully start monetizing Giant Online? Second question where are you with the share repurchase as of to-date; have you begun the repurchase process?

Eric He

Let me answer the second part first. For the share repurchase program, as I alluded in a script, share repurchase program we will have to buy the 10b5-1. That means we have to execute the repurchase program during open window period. So that is according to normal procedures. And let me just direct this first part of the question to our President, Liu. (Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) Giant Online actually was commercialized starting in closed beta period. Therefore, month [ph] sessions started then. As Eric alluded to earlier, the open beta that occurred on March 28th generated – we were very pleased with the user numbers as a result of the open beta launch. It was actually Giant Online's open beta was one of the best performing new open beta launches this year by PCU and the Chinese Online Game Industry. Since then we received lot of feedback from our gamers and we are constant – and although the game has ramped up moderately to our expectations we have constantly listened to the feedback from our gamers and analyzing the feedback to cater to our gamers and generate new features and game plays for them. Our next update will be our final open beta that we planned to release in the fourth quarter of this year.

Tony Gikas – Piper Jaffray

Okay. And then on the share repurchase how much stock did you repurchased as of today?

Eric He

As I said that the share purchase program will have to be executed during the open window period. So before the announcement of earnings I believe it's still not in the open window period.

Tony Gikas – Piper Jaffray

Okay, thank you, Eric.

Wei Liu

Thank you.

Operator

Your next question will come from the line of Alicia Yap from Citigroup.

Alicia Yap – Citigroup

Thank you. (Foreign Language) I have three questions. So first of all, can you actually give us a little bit of color in terms of the 3Q outlook? Do you expect sequential [ph] update on the APA? Even though the ARPU may be the timing or you expect both APA and ARPU will experience at the time?

Yuzhu Shi

(Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) Because the changes that we made to our ZT Online in the third quarter had been pretty substantial, the variability includes our operating metric such as APA and ARPU. So it's a little bit hard to tell at this point plus, the addition of ZT Online Classic Edition. With this combination of all the changes, the visibility is very unclear at this point. Since we have reduced a number of promotional in-game activities and ZT Online, APA figures have indeed been lowered a little bit, and ARPU has decreased a little bit as well. But these changes – the impact is very near-term, short-term.

Alicia Yap – Citigroup

Thank you. And my second question is can you share with us the latest PCU and ACU number for your ZT Classic Edition? I just want to get a sense on how good the game is.

Yuzhu Shi

(Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) ZT Online Classic Edition is still in the open beta period right now – I am sorry closed beta phase right now. We launched a game into closed beta on July 23rd. And it's been a month since then and so far we have been very pleased with the user numbers.

Alicia Yap – Citigroup

Okay. And my last question is for your margin, should we assume that your margins for the third quarter and fourth quarter will be lower than the second quarter lever before rebounding in 2009, as you're going through this transition period with uncertain revenue stream, while you will still continue to invest in that still and getting activities and other costs remain steady?

Yuzhu Shi

Okay. Let me translate the question to Ms. Liu as well. (Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) Our margins in the third quarter should indeed be a little bit lower than normal due to the adjustments that we have made on ZT Online. However, when they revert back to normal, we believe that they will come back us to the range that is in-line with our historical margin level.

(Foreign Language)

(Interpreted) But nevertheless for 2009, we are still very confident in our revenue and also our margin level.

Alicia Yap – Citigroup

Thank you.

Operator

Your next question will come from the line of Eddie Leung with Merrill Lynch.

Eddie Leung – Merrill Lynch

Good evening to (Foreign Language) Eric and Rich. I got two questions. The first one is regarding the transition. I would like to know why you gangs together picked the third quarter as the times. Why not say in the second quarter of the fourth quarter or 2009?

Yuzhu Shi

Let me translate the question to Ms. Liu. (Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) Even though our performance during the first and second quarter of this year has been very solid, we received lot of feedback from our players and we determine that our revenue model has poor has been, a little bit unhealthy. So after discussing the situation with our – on this performance we felt that this is the right time to implement these adjustments.

(Foreign Language)

(Interpreted) ZT Online began closed beta testing in January of 2006 and has been operating for over two years now. And although the performance of this game has been extremely positive throughout the last two years, we felt that to extend the lifecycle of the game and to promote a healthy revenue model, this was the right time to begin these adjustments.

Eddie Leung – Merrill Lynch

I see. And my second question would be related to the regulations of the government. Have you heard anything about potential implementation, the rating system for – on that games? Should we expect some changes, the regulations into 2009?

Yuzhu Shi

Let me translate this to Ms. Liu. (Foreign Language)

Wei Liu

(Foreign Language)

Yuzhu Shi

(inaudible) would like to answer your question.

Unidentified Company Speaker

(Foreign Language)

(Interpreted) The regulation is that you're talking about is primarily focused to minors gamers who are under the age of 18 and there is a – there should be regulation that will impact this, but it's hard to say whether – at this point whether this will be implemented in 2009 or 2010. But we have been anticipating this change since the start of our business. And so, in our games, we don't even allow minors to open an account in our games. When they register, we check their ID numbers, so if they are under aged, they cannot create an account for a game. So there should be no impact for us as a result of this regulation.

Eddie Leung – Merrill Lynch

Thank you. Very helpful.

Operator

Your next question will come from the line of Paul Keung from Oppenheimer.

Paul Keung – Oppenheimer

Hi. Good evening. Thank you for taking my question. The question is on your sales and marketing costs. In the second quarter, increased quite a bit. Do you expect that to remain at same level for the next few quarters? Or is it only due to the promotions for Giant Online and ZT. Or is it combination of just generally increase and promotional costs because of the more competitive online game market?

Yuzhu Shi

(Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) In the second quarter, the increase in sales and marketing expenses was primarily due to the launch of Giant Online open beta. And in the future, increases in sales and marketing would be result of new product launches or new versions of our ZT games. For example, in the fourth quarter, when we launch a final open beta for Giant Online or when we launch ZT Online Classic Edition then we would see an increase in sales and marketing.

Paul Keung – Oppenheimer

Okay. And as a follow-up to that, can you explain how does the marketing efforts and the budget is divided between VL.com [ph] and Giant Interactive because I see right now you're running a promotion of beauty contest within both VL.com and Giant Online?

Eric He

Okay. Let me answer your question, Shan. The 51.com is a pure investments. So – yes, we do have some cost marketing program with them. However, I think if there is any expenses or cost incurred, we will be responsible for ours, they were responsible for theirs. Specifically, in our sales and marketing expenses the breakdown is that about one quarter of what the sales and marketing budget or the numbers that you have seen actually will be mainly attributed to the advertisements. And so, that is pretty much – the breakdown that we have and we expect this kind of breakdown may in general, continue for the quarters to come.

Paul Keung – Oppenheimer

Okay. Thank you.

Operator

Your next question will come from the line of Gary Nae [ph] from UBS.

Gary Nae – UBS

Good evening. Thanks for taking my question. I have two questions. First, can you give us a breakdown of the ACU or PCU – what was the percentage for Giant Online right now? And then what's the overall percentage of active player – as acting paying player?

Yuzhu Shi

Acting paying player and active players?

Gary Nae – UBS

Yes.

Yuzhu Shi

(Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) Let me just translate that in English. For Giant Online, in the second quarter, we've already disclosed PCU numbers, they're in the open beta period and also, a month later in May. And it's our policy to disclose only consolidated operating metrics for all our game at each quarter. However, during the second quarter, both our games have been there – operating metrics have been performing very well, trending upwards.

Gary Nae – UBS

Another question is that when you are looking for R&D personnel in terms of a future – the development of the R&D teams, what exactly are you looking for and do you believe that you are looking for something different from your competitors?

Yuzhu Shi

In terms of pallets is that what you are talking about?

Gary Nae – UBS

Yes.

Yuzhu Shi

Okay. (Foreign Language) We would like to ask (inaudible) to answer the question, because he is more tune into this R&D department.

Unidentified Company Speaker

(Foreign Language)

Yuzhu Shi

Well, we believe that among all online game companies, we are pretty much looking the same type of the challenge, specifically, very outstanding game design personnel, very good programmers. Now, the competition is very intense. So, we are pretty much looking for those good talents to beef up our R&D departments.

Gary Nae – UBS

Thank you very much.

Operator

Your next question will come from the line of Tam Chu [ph] from Tally Capital [ph].

Tam Chu – Tally Capital

Thanks for taking my question. I just have several questions. Following on the previous analyst question. The first one is really the two versions, one is the item-based Giant Online, and you're doing modification in terms of how the game is played. So you decreased online promotion, and so make it much more look like the classic version, so going forward, as you're promoting your classic version and then make the conversion, more look like the classic conversion, so what are the differences between the two versions going forward? That' first question. The second question, is there any cannibalization between two versions?

Yuzhu Shi

Let me translate this to Ms. Liu. (Foreign Language)

Wei Liu

(Foreign Language)

(Interpreted) For Giant's part – ZT Online in 2007 we added a lot of features such as in-game promotional activities and the treasure box that generated a lot of revenue for us. But there is a segment of users out there, who were not receptive to the new features, even though they did attract lot of new users. So in ZT Online, the free to play original version we cannot reduce all of the features to win back these old users, but with the Classic Edition we eliminated all the promotional in-game activities and eliminated the treasure box. And so far this Classic Edition has been well received by the old gamers who – is a part of our segmentation strategy and allows gamers to choose which version of the game they want to play based on their preferences and spending ability. We believe there is a big potential for this game, because there is a lot of people who have played ZT Online before.

Tam Chu – Tally Capital

Okay. So the second part of the question is have you seen any users who play ZT Online now is moving to your online classic version?

Yuzhu Shi

(Foreign Language)

Wei Liu

(Foreign Language)

Tam Chu – Tally Capital

Okay. The other version of the ZT is it ZT time based model, so I heard you talk about that so you please give us some color on that terms of is the game – is this version touching into grow, what's your plan for those version?

Eric He

Tam, let me just go back and translate that for Ms. Liu. In the ZT Online Classic Edition, approximately 60% of the current users are former ZT Online players that we were trying to win back. And approximately, 30% to 40% Classic Edition users are from ZT Online.

Wei Liu

(Foreign Language)

(Interpreted) For the ZT Online pay to play, the time-based subscription version, it actually is not that big for us right now. Most of the gamers in the market are more interested in free to play version.

(Foreign Language)

(Interpreted) So actually the pay to play version is actually another part of our segmentation strategy.

Tam Chu – Tally Capital

Okay. So back to the income statement and in terms of our R&D spending, what we understand why the R&D spending was up a lot. And so do you plan to continue to recruit more people in the second quarter, first quarter? Shall we expect this part of spending to continue to go up?

Yuzhu Shi

Yes, indeed. R&D spending in the second quarter actually increased quite a lot. I think this is because that we actually raise the salaries for our current R&D persons. On top of that we actually start in recruiting more R&D engineering staff to join us. As of second quarter, we have more than 440 engineers, R&D, very broad R&D areas. I think moving forward, for next two quarters, it will end up the year we will expect R&D personnel continue to increase although that we don't expect the increase of R&D expenses will be as dramatic, because as I mentioned, in the second quarter, one of the reason for them to increase quite significantly is because of their pay rise. So, we are not expecting any pay raise, for the second quarter at this moment. So I think the growth rate will be a little moderate for the second half although that we expect that it will be on a rise.

Tam Chu – Tally Capital

Okay. The next question is in the operating expense there is one item is government tax incentive. So this year Q1, Q2, you got from already. So do you expect to receive more tax incentive from the government in Q3 and Q4?

Yuzhu Shi

Well, let me explain this government incentive. This particularly is business tax refund from the municipal government. Because originally when we incurred this business tax, we include this as a part of cost of services. So accounting wise, we will have to recognize this as a deduction of our operating expenses. For the whole year, we believe we will have little more although that this will have to be on an application basis, to the government. So I expect that for the second half we may have some more.

Tam Chu – Tally Capital

Okay. I guess the last question is as you mentioned about the share repurchase program, and I understand you got only two that was the windows open, so, what did you expect the window to be open after the earnings, two days, three days?

Yuzhu Shi

Well, this question I think it’s a very simple to answer, because we will abide by the law, the open window there is a very common regulations for us. So we will abide by the SEC and NOI SEC [ph] regulations. So I think to us we will abide by this SEC regulations closely. So we will not do anything that is out of this boundary.

Tam Chu – Tally Capital

Thank you. That's all my questions.

Operator

Your next question will come from the line of Adam Krejcik from Roth Capital.

Adam Krejcik – Roth Capital

Hi. Thanks for taking my call. Two quick questions. First, some of your competitors have been changing discount rates they have offered to their distributors. Have you guys done the same thing followed in their footsteps?

Yuzhu Shi

Okay. Let me translate this to Ms. Liu.

Wei Liu

(Foreign Language)

(Interpreted) Yes. I just want to make sure that I get this right. Well, I think, Adam, you're very right. I think in the industry, not only our competitors, including us. We have a somewhat adjusted our discount policies to those distributors, not inclusive to distributors. If you compare the level in 2008 versus 2007, yes, discount to the distributors actually is less. So we are pretty much in tandem with what our competitors is doing right now. But moving forward, we will watch what this industry will become. I think we will pretty much follow what this industry’s common practice.

Adam Krejcik – Roth Capital

And then secondly, you guys have $835 million in cash, can you perhaps break in order the expected uses of the cash obviously you’ve announced another buyback year, and you have invested in 51.com, but going forward, are you looking for more game content, possibly licensing more content or you are going to invest in additional social networking site or even possibly acquire some game companies. There have been a lot of rumors in the quarter regarding potential investments on your part; perhaps you could just provide some additional clarity on that. Thank you.

Yuzhu Shi

Yes. Thank you, Adam for the question. Yes, indeed, we do have more than 800 million in cash on hand which is quite a significant position. I think for us this resources we're using in the best way to help us to grow the business long-term. Specifically, as you mentioned that we announce a repurchase program and that is going to be one of the usage for us. More than that, I think two directions. One is we will continue to see the good opportunities in M&A areas. Specifically, we did a 51.com investments.

Moving forward, I think we will pretty much focus our M&A efforts into online game business. We will like to stay in online game business. I think we are pretty much done with this social networking Web site investments. Because as you know that 51 is one of the largest in China. So I think yes, we are looking for those game companies with the strong R&D development capabilities and with the good products and also they have a very strong customer base, large customer base. And those are our targets. So we will deem the product development capability as a very important and very good assets to us. And the other direction is actually going to find good foreign games or the game produced by other developers, we would like to seek a possibility of licensing, some of their games, as you know, that some of the good games if you want to get the licensing rights, it will probably take some money to do so. So I think both licensing and M&A or investments are will be our directions.

Adam Krejcik – Roth Capital

Great. Thanks a lot, guys.

Operator

Due to respective time this concludes today's question-and-answer session. I would now like to turn the call back over to Rich Chang for closing comments.

Rich Chang

Thank you again for joining us today. And we look forward to updating you on our progress in the near future.

Wei Liu

Thank you.

Yuzhu Shi

Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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