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spk08: Good day and welcome to the NetEase 2021 Third Quarter Earnings Conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Margaret Shee, IR Director of NetEase. Please go ahead.
spk10: Thank you, Operator. Please note that the discussion today will contain forward-looking statements relating to future performance of the company and are intended to qualify for a 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 and 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 in this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20S, and the announcements and the filings on the website of Hong Kong Stock Exchange. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will discuss certain non-GAAP financial measures comparison purposes only. For a definition of non-GAAP financial measures, as a reconciliation of GAAP to non-GAAP financial results, please see the 2021 third quarter earnings release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on NETGEAR's COPPA website. Joining us today on the call from NetEase Senior Management is Mr. William Ding, Chief Executive Officer, and Mr. Charles Yan, Chief Financial Officer. I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.
spk02: Thank you, Margaret, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. The third quarter was an exciting one for NetEase. We launched a number of top-ranking games, bringing our game revenues to a new record of RMB 15.9 billion. Our other business segments also grew robustly, supporting our total net revenues growth of around 19% year-over-year, reaching 22.2 billion RMB. For online games, Our flagship titles continues to demonstrate strong growth after nearly two decades of operation. Revenues from Fantasy Westward Journey Online and Westward Journey Online both grew at double digit rates year over year in the third quarter. The mobile versions of these two legacy sagas showed resilient year over year growth as well. Adding to our strong portfolio of PC games, our new hit games Naraka Blade Point and Nightmare Breaker took our PC games revenue to a new record high in the third quarter, growing by 30% year-over-year, far outpacing industry growth. Featuring unchained melee combat, Naraka Blade Point has taken the PC games market by storm, reinvigorating the stable battle royale genre with exciting novel ideas. Its global success showcased our ability to bring first-rate games to the world stage. By November the 10th, we have already sold more than 6 million copies of Naraka Bladepoint worldwide in just four months' time, making it one of the top sellers ever on Steam platform. Players in both China and global market are hailing Naraka Bladepoint for its thrilling combat experience. So far, Naraka BladePoint has retained an 80% positive review rate on Steam, which naturally leads to excellent user retention and continued user growth. We believe Naraka BladePoint will experience the same level of longevity as many other NetEase flagship titles. We work hard to keep our games fresh and plan to continuously introduce more exciting new content, including new modes, heroes, and maps. To add to the enthusiasm, we are also currently working around the clock to extend the game offering to console and mobile platforms. We expect to bring players these exciting versions in the next year. On the heels of the Naraka Blade Points deal, we launched another PC game, Nightmare Breaker, in September. It is an action-based competitive fighting game taking place in a fantasy setting. Players can choose from a variety of roles with unique abilities to battle against dark forces and save the world. As a game with unique gameplay, Nightmare Breaker further expands our base of PC players. Turning on to the mobile side, our new hit game, Harry Potter Magic Awakened, has enchanted millions of players going viral across China. It instantly dominated both top download charts and top grossing charts in China following its launch in September. Harry Potter Magic Awakened conjures a charming wizardry world touching the hearts of millions. The game has attracted a large crowd from young generations. Across the gamer community, its elaborate designs are gaining great acclaim, including iconic European retro picture books and interesting card-based combat. Infused with abundant competitive gameplay, we hope Harry Potter Magic Awakens will continue to gain adoration from players in China maintaining its popularity over the longer term, as many of our other titles do. We are equally excited for its global launch. Calling on the nostalgia of generations of Harry Potter fans, we believe this game has great potential for extensive popularity across the globe. Currently, we are working hard on its localization for other geographies, with plans to formally launch Harry Potter Magic Awakens in some of the major overseas markets next year. As another title we launched in the domestic market, our space-themed SLG game, Infinite Lagrange, also had a strong start in China in the third quarter. Sci-fi fans were captivated by the game's intense and exciting travel through time and space. In time, we believe Infinite Lagrange will continue to earn respect from even more players, extending our strength in the SLG market through its super immersive space experience. On the international front, we introduced the Lord of the Rings Rise to War to the US, Europe, and several other overseas markets, making a strong debut at the end of the third quarter. The Lord of the Rings Rise to War has amassed a huge user base across the globe, With engaging and thought-provoking gameplay, as well as a strong appeal of the Lord of the Rings IP, we see great potential for the growth of its users. We expect the Lord of the Rings Rise to War to behave similarly to our other time-proven SLG title, Invincible, with revenue ramping up gradually and showing an upward trend over time with a long-lasting lifecycle. Complementary to our in-house R&D capabilities, we have also been deepening our overseas footprint through strategic investments and partnerships. We are looking for talent and teams that complement our R&D skills on a global scale. Over the past few years, we've invested in top teams, including Bungie, Quantic Dream, Second Dinner, and TheoryCraft. as well as the recently announced strategic funding in Catholic and acquisition of Grasshopper in Japan. With these partnerships, we plan to share our know-how in R&D and operations while gaining new inspiration from the creative minds of these overseas studios, as well as a deeper understanding of overseas users and their preferences. Together, we share the same passion and vision to build the next sensational blockbuster for players worldwide. In addition, we have launched a few game studios in places such as Montreal, Tokyo, and LA with an aim to attract the best international talent to further broaden our R&D capabilities. Moving to our game pipeline, as I mentioned earlier, in the next year, we plan to launch Harry Potter Magic Awakens in more overseas regions, as well as bringing players console and mobile versions of Naraka's Blade Forms. Very soon, we will be introducing another highly anticipated game, the Showbiz Dream Chaser, our self-developed Showbiz simulation game, catering mainly to emerging female users This game provides players with a new role-playing experience as an actor or actress in the world of showbiz. Here, players get to live their dreams of fame and explore the exciting life of a performer in the entertainment industry. Highly acclaimed for its distinctive setting, immersive experience, and art design, we believe the showbiz dream chaser could open up a new genre with great market potential for NetEase. Our pipeline also includes Diablo Immortal and Ghost World Chronicle. Moving ahead, we will continue to bring players inspiring new games that stand the test of time in China and worldwide. Turning to Youdao, we have made solid progress with our transition to better align your Daoist business with the latest regulatory guidelines, which aim to alleviate excessive academic pressure on Chinese youth. While we are in the process of disposing of our academic after-school tutoring business, we are making excellent progress with our other pillars of future growth, including STEAM courses, adult learning, smart devices, and education digitization solutions. Total net revenues for Youdao in the third quarter were RMB 1.4 billion, representing a 55% growth year-over-year. Revenues from the after-school academic tutoring classes in China's compulsory education system accounts for around 25% of Youdao's total net revenues. In the third quarter, we continue to grow our STEAM course offerings. For Youdao Go, Youdao Weiqi, its growth billions and user engagement has been growing rapidly since its launch last year. During the quarter, we upgraded its current AI system during the period, giving our students a more efficient platform for practices. Youdao iCode, Youdao Xiaotuling, which prepares children for programming education, launched Python courses in this quarter and became a member of China Computer Federation Programming Trainer Accreditation. Our reach in the adult education space is also expanding, as encouraged by the authorities. For example, our extraordinary memory, Fei Chang Ji Yi, course retained its leading position with gross billions approaching RMB 100 million in a single quarter. We also recently announced a collaboration with Amazon Web Services, AWS, to bring its free digital training courses to Chinese users on NetEase Cloud Platform. Learning devices remain robust with record high revenues of RMB 255 million, a 56% increase year over year. Yodal continuously upgrades and enriches its product offerings to facilitate efficient learning under different scenarios. In the third quarter, collaborating with the People's Education Electronic and Audiovisual Press, we launched a new version of our award-winning dictionary pen containing over 4,000 original sounds from textbooks published by the press. We also rolled out our Youdao listening part in September, which helps improve students' English skills in listening, speaking, and reading through real-time intelligence scoring and pronunciation correction functions. In addition, we are working with local schools, experimenting with different digitization solutions, which gives school teachers more automated teaching and grading tools and facilities. enabling more efficient teaching. Now looking at our cloud music business, we continue to improve our differentiated music community ecosystem via product and content enhancements to keep us ahead of the curve. We are now better positioned amid a healthier industry development. Our top-line growth drives solid margins in the third quarter representing our second consecutive quarter of positive growth margins. Some of our innovations include upgrading our main cloud music homepage in August, adding new community features. Users are also enjoying our newly launched music gift box function, which opens the video creation capacity to individual users, allowing them to distribute customized content to friends. In addition, we launched Village Citizenship Card, giving each of our users a personalized ID in Cloud Village, allowing them to feel a fresh sense of belonging. This created a lot of buzz on the social media, further extending our brand influence. In combination with other industry players, we are actively working to secure more high-quality content with Baxter ROI, especially following the recent favorable industry changes. In the third quarter, we completed a direct agreement with Warner Music Group, which means we now have direct digital distribution contracts with all the three of the world's largest recording label groups. We are also pleased to see such favorable collaborations with big labels at a more reasonable cost structure, providing us with the flexibility to optimize our content investment using a more disciplined and predictable approach. Meanwhile, we are also actively completing our major Chinese music library, recently adding several new copyrights, including Modern Sky, one of China's largest independent record labels, and Emperor Entertainment Group, one of the largest entertainment groups in Hong Kong. Our negotiations with some major music labels are close to being finalized, and we expect more to come, further complementing our song library offering. Turning on to Yanshan, as Medi's private label consumer brand, Yanshan continues to build its brand awareness by regularly launching highly popular products. via diversified channels. Apart from solid sales growth from external e-commerce channels, we now have seen strong momentum from short video platforms such as Douyin and Kuaishou with some popular products like bathroom flavorings and coffee practice. Our advanced and differentiated original design products are being very well received by the users and the market. In Q3, we successfully launched several original design series across categories, including clothing, dining and kitchen, home furnishing, and personal hygiene and maternity. We are gaining increasing recognition for excellent design and creative style. In August, we won two prestigious Red Dot Awards for our Dear John Bedding Design and Yanshan Dunhuang Museum tea packaging design, competing among thousands of design submissions that came from more than 60 countries and regions. These accolades add to NetEase Yanshan's increasing number of awards and honors, which includes 2021 German IF Design Award, along with many other international awards and recognitions from the design industry. During the Double 11 promotion, we recorded over 100 million GMV through Taobao and Timor channels. And on JD, we were also the number one brand for daily goods and products. Commensurate with our extensive growth across our businesses, our capacity to give back has grown as well, enabling us to amplify our ability to help our communities. Our resolve towards social responsibility has also been heightened by the immediate need of those who have fallen victim to natural disasters and public health crisis. Most recently, we were deeply saddened by the destruction and loss felt by those in Shanxi and Henan provinces. To help these flood-ridden areas ravaged by natural disaster NetEase has donated over $50 million to Henan and RMB $20 million to Shanxi to support much-needed relief efforts and post-disaster reconstruction. The mounting natural disasters tell us that we all must become better custodians of the Earth. As a corporate citizen, NetEase's commitment to environmentally responsible action In addition to our financial contributions toward natural disaster alleviation and restoration, we are leveraging our strengths and resources for environmental protection. We believe games have the power to raise awareness among billions of people across the globe about environmental conservation and restoration. In the third quarter, live after one of our flagship titles, joined the second annual Green Game Jam, organized by the UN-facilitated Playing for the Planet Alliance. Players need to go to the forest in the game to put out the forest fire during the activation. Our participation in this alliance represents NAGI's increased social responsibility, using games as a tool to create environmental awareness to help protect our planet. As we continue to advance our environmental and social pursuits, we are thankful for our growing business that allows us the financial capability and social influence to support these efforts. Moving ahead, we will continue to cultivate our business by exploring more creative practices to enrich our broad content, increase our product exposure, and bring even more diverse and engaging experiences to our users while leveraging our strengths to enact positive social and environmental change. This concludes William's comments. I will now provide a brief review of our third quarter 2021 financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. we encourage you to read through our press release issued earlier today for further details. Total net revenues for third quarter were RMB 22.2 billion, or US dollar 3.4 billion, representing a 19% increase year over year. Our net revenues from online game services were RMB 15.9 billion, up 15% year over year, The year-over-year increase was primarily due to our newly launched games such as Narrative Late Point and Harry Potter Magic Awakens, as well as from existing games such as Fantasy Westward Journey Online and Westward Journey Online 2. Net revenues from our mobile games accounted for approximately 69% of the total net revenues from online game services in the third quarter. Youdao's net revenues reached RMB 1.4 billion, up 55% year-over-year, driven by fast growth of both Youdao tutoring services as well as increased sales of intelligent learning devices. Of the Q3 total revenues, about 25% of that relates to academic subject courses in China's compulsory education system. Net revenues from innovative businesses and others while RMB 4.9 billion for the third quarter of 2021, up 26% year-over-year, mainly due to increased contribution from NetEase Cloud Music. For Cloud Music, both membership and live streaming revenues maintain solid growth momentum driven by robust paying user expansion. Our total gross profit margin was 53.2% in this quarter, with a breakdown as follows. Gross profit margin for our online game services was 64.5%. As a reminder, this number is generally stable with some narrow fluctuations based on the revenue mix of mobile and PC titles as well as self-developed and licensed games. Gross profit margin for Yodal was 56.6% compared with 45.9% in the same period of last year Significant growth was primarily attributable to the improved learning services growth margin due to improved economies of scale and continuous optimization of our faculty compensation structure. Substantial sales growth of the smart learning hardware, such as our Yodao Dictionary Pen 3.0, also contributed to these gains, as this line carries a higher growth margin than other product lines. Gross profit margin for innovative businesses and others was 15.6% compared with 16.8% last year. The decrease was mainly due to decreased gross profit margin from the games streaming business, CC Live Streaming. NetEase Cloud Music, however, enjoyed its second consecutive quarter of positive GDP margin. For the third quarter, Total operating expenses were RMB 8 billion, or 36% of our total net revenues. Our selling and marketing expenses as a percentage of net revenues were 14.1% compared with 14.7% in the prior quarter. The quarter-over-quarter decrease was mainly due to decreased marketing spending related to your dollar. R&D expenses were RMB 3.8 billion, The third quarter is our seasonally high quarter for R&D as our new campus hires graduate and commence their career with us. We remain committed to investing in content creation and product development, which is core to our sustainable future growth. The effective tax rate was 19.6% for the third quarter. As a reminder, the effective tax rate is presented on an accrual basis And the tax credits differ from each of our entities at different time periods depending on applicable policies and our operation. Non-GAAP net income attributable to our shareholders for the third quarter totaled RMB 3.9 billion or US dollars 599 million. Our non-GAAP basic earnings per ADS were US dollars 0.9 or 0.18 per share. Our cash position remains strong. As of September 30th, our total cash and cash equivalents, current and non-current time deposit, and short-term investment balance totaled RMB 98 billion compared with RMB 100 billion as of end of last year. In accordance with our dividend policy, we are very pleased to report that our Board of Directors has approved a dividend of US$0.045 per share or US$0.225 per ADS. Lastly, under the current two-year share repurchase program, approximately 13.5 million ADS has been repurchased as of September 3rd for a total cost of approximately US$1.3 billion. Meanwhile, On the NetEase Youdao share purchase program, approximately 0.1 million ADS had been purchased for a total cost of US dollar 1.8 million as of September end. Thank you for your attention. We would like to open the call to your questions. Operator, please go to Q&A.
spk08: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. For the benefit of all participants on today's call, if you wish to ask your question to the management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time If you wish to have follow-up questions, please rejoin the queue. We will now take our first question from Alex Poon from Morgan Stanley. Please go ahead.
spk14: William, Charles, Margaret, congratulations on your very strong performance and gaming equipment. My first question is for Harry Potter. May I ask what is the specific situation of the overseas launch schedule? You mentioned that it will be issued next year, 2022. Is there a more specific time table, such as the first or second quarter, and so on? Which areas will be issued by us? And then I would like to ask about the progress in localization work in the content community. My question is, first of all, congratulations on very strong results and gain pipeline. My question is regarding High Reporter overseas release schedule. Do we have more specific timeline for different regions? um for uh for release next year uh how's the progress of content localization and community localization etc uh house uh do we have a revenue expectation for overseas uh how is it compared with china revenue thank you very much uh well thank you alex uh let me answer your question directly in english we have a strong pipeline and and uh
spk02: Harry Potter is one of them. And right now we, subject to obviously the progress of localization, we intend to launch Harry Potter to some overseas market as early as first half of next year. And given the huge fan base of the Harry Potter IP worldwide and particularly encouraged by the very strong performance of Harry Potter in China, we are hopeful that this game would become a worldwide sensation. The publishing right is a commercial arrangement between NetEase and Time Warner. For some of the markets, NetEase will be in charge of publishing, whereby majority of the overseas market
spk13: publishing will belong to Time Warner. Thank you, Charles. Thank you.
spk08: Thank you. We will now take our next question from Alicia Yap from Citi. Please go ahead.
spk09: Thank you. William, Charles, Margaret, good evening. Thank you for accepting my question. My question is about music. I would like to ask Guan Lichun, because there have been a lot of short videos recently, and there is some interest from users on these music platforms. So I don't know if you are worried about the impact of short videos on us in terms of music. Thank you, management. My question is related to NetEase Cloud Music. So how do you see the overall competitive landscape and also the time span dilution from the short video platform. Do you worry if the leading short video platform like Douyin that could enter more aggressively in the online music content that could actually pose some threat to cloud music over time and also affect the user time span on cloud music? Thank you.
spk03: We believe that the biggest difference between music and video is that high quality music will make people feel a strong sense of resonance and calmness. This is the biggest difference between music and video. If you watch a video once, you will rarely watch it again. But if you listen to good music once, After listening to it once, you may want to listen to it a second time, a third time. Even for a period of time, this melody has been lingering in your mind. The second question, you asked if you were worried about other platforms doing music. I believe this is an open market. We are very pleased to recognize a company that can enter the music market.
spk10: So yes, we do observe that, at least in short-term, short-format videos or other general video formats have taken some of the user time spent, and that not only in music, but also in games, in other forms of entertainment. But what's the major difference between music and the video is that music creates that resonance between users. It creates that immersive experience for users. So video, after you watch one video, you probably don't want to watch it again. But for music, you tend to want to listen to it over and over again if it's a piece of music that you love. So a second question on potential new competitors, new entrants to the market. Our view is that this is a very open market. We very much welcome others to join and help those independent musicians in China to realize their dream. Thank you.
spk09: Thank you, William. Thank you, Margaret.
spk08: We want to take our next question from Natalie Wu from Hitong International. Please go ahead.
spk11: Thank you. Good evening, Dean Jones, Charles, and Margaret. Thank you for accepting my question and congratulating me on such a strong performance. Then my question is about the interoperability. Last quarter, we mentioned a profit ratio of selling copies and purchasing. Now the whole world sells 6 million copies. I want to know how much this number is at this time. And these two income, how do you do this? I also want to know the management's view on the life cycle of this game. Thank you for taking my question, and congratulations on a very short quarter. So my question is regarding the Black Point. Just want to get an update of the copy based sales revenue contribution versus in-game purchase revenue contribution at the point of 6 million copies worldwide. And also for each part, how should we understand the deferral treatment in terms of the revenue recognition? Also, if management can share with us some thoughts on the longevity of this game, that would be great. Thank you.
spk02: Okay, Natalie, in the interest of time, I'll answer that question directly in English. So firstly, on your question on revenue recognition, so both for the... copy sales as well as the in-app purchase, we adopt the revenue deferral treatment over an expected lifespan. So this is consistent with our revenue recognition treatment of other PC and mobile games. Obviously, with the games being launched a few months back, now the gross billions will come more and more from the in-app purchases, which we are very confident that Naraka BladePoint, just like many of our other NetEase flagship titles, will have a very time-proven longevity. We think a combination of stellar global sales record for copies as well as our longevity through operations, through content update, this will create a unique model for the global PC games in terms of proving the longevity and sustainability of the gross billion over the longer term. Hopefully that answers your question.
spk11: Yes, very clear. Thank you, Charles.
spk08: We want to take our next question from Kenneth Fung from Credit Suisse. Please go ahead.
spk00: Hi, Mr. Ding, Charles, Margaret. Thank you for accepting my question. Congratulations on your strong performance and the success of Harry Potter in China. My only question is about music. I saw that after we signed Big Three, we recently signed with English Entertainment. Thank you, management, for taking my question. I have a question on the NetEase Cloud Music. Note that we have obtained a full copyright authorization from Empire Entertainment recently, and also the big three. So how should we think about the pace of signing up new copyrights? and the impact and benefits on our content costs and the margin going forward. Thank you.
spk03: The most expensive, even several times more expensive than a country. This is very unfair. So what about this cost? I believe that under the supervision of future countries, it will be reasonable. The second question is that in these cases where the price of copyright is reasonable, I think each company should create some competitive advantages by itself, especially how to help independent musicians in China. to develop and support their works, and even to guide them to create more excellent works that meet the Chinese cultural characteristics and deliver positive energy. This is the social responsibility that we as a platform company should bear. NetEase Music has been prepared in this regard. We are very actively and hard-working
spk10: Over the last few years, the methods in China have not been perfect, which is why the industry players in music industry have been paying a much more expensive price to the label companies than anywhere else in the world. As everybody has seen, on July the 24th, The authorities have gave guidelines to certain companies and asked them to give up exclusive rights. So I think overall, what we would like to see is to be able to pay a fair price to the label companies across the world. And we are confident under the right directions from authorities, the Chinese Chinese Music industry will continue to converge in the right direction. Secondly, we think that every music company in China should really be focusing on helping independent musicians to create good music, to relay positive messages. As a socially responsible company, Netis Cloud Music has been making those preparations. and that is our agenda and that is our goal. Thank you.
spk13: Thank you.
spk08: We will now take our next question from Thomas Juechong from Jefferies. Please go ahead.
spk01: Good evening. Thank you for introducing my question. Congratulations on your long-term performance. 我的問題主要是想問一下關於我們的M&A的戰略的,還有就是我們未來在先進的用途。 另外一個問題是想關於Expenses方面,就是未來幾個季度或者是未來一段的期間, 我們在OPEX的話,可不可以跟大家分享一下我們的看法嗎? Thanks, management, for taking my questions and congratulations on a very strong set of results. My question is about our M&A strategies as well as the use of cash. In addition, can management share about the force in terms of the trend in operating expenses? Thank you.
spk13: Thank you, Thomas. I'll answer your question directly in English.
spk02: So firstly, for our M&A strategy, NetEase is always being a very, we are always very focused in our core pillars of businesses, games, online music, online education, private label brand, Yanshan. So our business development will be concentrated in our major verticals And we obviously prefer, and for the past two decades or so, we've been growing organically. But we also remain highly active to explore opportunities to deploy M&A to further supplement our growth. So that's always been our consistent approach towards M&A. In terms of the cash proceeds used, Again, we invest most of the cash into ourselves, into our talent acquisition and retention, into our content creation, and it takes patience and it takes commitment. For instance, a major title of next blockbuster game can easily take a few years with big budgets to develop. I think this is also one of our competitive edge that as a major game, a powerhouse that we can afford and we can be determined to focus on what we are really good at and what we really want to create. OPEC's trend is I think NetEase has been listed for over 21 years and we always had a very consistent approach into expense management. we focus greatly on ROI return. Given our strong cash balance sheet, we are not shy to spend money. However, we never burn cash for the sake of spending money. Whenever we spend money in terms of selling marketing into R&D, it is ultimately ROI-driven that we want to make sure that the money we spend today may not necessarily give us the top line return within the same quarter, but we will be handsomely rewarded. As such, we expect that we maintain a prudent yet healthy level of selling marketing. On the R&D front, we are committed to spend more. that is also encouraged by the authorities, and I think that is also what a long-term sustainable technology company should do. Thomas, that's the answer to your question.
spk13: Thank you, and congratulations on a strong quarter again. Thank you, Thomas.
spk08: We will now take our next question from Eddie Leung from Bank of America. Please go ahead.
spk05: William, Charles, Margaret, good evening. There is a supplementary question about an overseas game strategy. We know that good games should be very popular in different countries. But because of the difference in supervision and culture, it may also require some development market to make some games that are more suitable for the local taste. I heard you say that you have already started to work with some overseas studios. We have also heard from you before. For example, last year, you started to talk about this matter. I'm more curious if you have a division inside. For example, some domestic development teams Thank you. I will do the translation myself. I have a follow-up question on your pipeline for the overseas game market. We understand that a good game should be popular across different regions, but there are also cultural and regulatory differences. So just wondering, besides working with overseas studios, if your Chinese studios will also be involved in game projects designed specifically for the overseas markets? Thank you.
spk04: global players would like. For games like this, we have special teams developing it. For teams like this, it might be a team of overseas players and some of our talents working together to develop it. For example, we have a team of international players working together to develop the project. The third type is where we invest or design a team that is completely overseas. Thank you. The answer comes from Ji Peng.
spk10: So our China-based team, their main focus is on the Chinese-themed games that they know well for the Chinese-speaking countries. But secondly, we have been putting a lot of energy and resources in games that are targeted for the global launch. So for those games, we need to think about the gameplay, the world view, and all the details in a global manner. And for those types of games, it's typically joint developed by our China-based team and some of our overseas games, for example, Montreal. And certainly, we also have games that have been developed solely by the overseas team who will be working on games that inspire them and are targeted in the markets that they know the most well in. So altogether, we hope to introduce to the global audience more and more exciting games to play. Thank you.
spk05: Thank you.
spk08: We will now take our next question from Jiwolong Shi from Numura Secure Sheets. Please go ahead.
spk07: My name is Charles Marguerite. Thank you for accepting my question. First of all, congratulations on a very strong Q3 performance. Then my question is about the original universe. This is a very hot concept recently. We have also seen that many foreign companies, including game companies, are planning to invest in the original universe. So I would like to ask the management level how to see how the original universe can give the gaming industry a chance to grow in the future. Can you tell us how you plan to set up NetEase in this aspect? I will translate myself. So my question is about Metaverse, which is a very hot new area these days. Lots of companies are planning to invest heavily in this field. Can management share with us your vision on Metaverse and what are the potential growth opportunities it may bring to the online gaming industry? and what are your strategies to tap this opportunity? Thank you.
spk13: Hello, Jialong.
spk03: The primitive universe is indeed a very popular concept. But to be honest, no one has ever been in contact with the primitive universe. In the middle, there is a little bit of Okay.
spk10: Metaverse is indeed the new buzzword everywhere today. But on the other hand, I think nobody has actually had first-hand experience in what it is. But that is, we are technologically ready. We know how to accumulate the relevant know-how, the relevant skill sets when that day comes. So I think when that day eventually comes, we'll probably be one of the fastest runners in the metaverse space.
spk12: Thank you, Diallo.
spk08: At this time, I would like to turn the conference back to Margaret Shee for any additional or closing remarks.
spk10: Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or TPG Investor Relations. Have a great day. Thank you.
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