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spk07: Good day and welcome to the NETEAST 2022 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Margaret Shi, IR Director of NETEAST. Please go ahead, ma'am.
spk04: 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 the safe harbor from liability as established by the U.S. Private Securities Education Reform Act. Such statements are not guaranteed of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond companies' 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's including its annual report on Form 20F and in announcements and 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 also discuss certain non-GAAP financial measures for comparison purposes only, for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results please see the 2022 second quarter earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, the investor presentation and the webcast replay of this conference call will be available on NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase Senior Management is Mr. William Ding, Chief Executive Officer, and Ms. Charles Yang, Chief Financial Officer. I will now turn the call over to Charles, who will read the prepared memo of Tom Williams.
spk12: 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. We are very pleased to report another solid quarter with net revenues growing to RMB 23.2 billion, up 13% versus the same period last year, Our online games continues to be our primary growth driver with net revenues from our games and related value added services coming in at RMB 18.1 billion for the second quarter, up 15% year over year. Please note, we changed our segment categorization this quarter. The expanded games and related VAS segment now includes game-related value-added services such as CC live streaming, game-related accessories and merchandises, et cetera. We believe this revised segment categorization better reflects the performance of our well-rounded capabilities around the broadly defined game ecosystem and value chain. Players continue to gravitate to our long-lasting franchises In the second quarter, revenue from our Fantasy Westward Journey saga kept on growing, further impressing the industry with their strength and longevity. Through the solid foundations we've built and continuous iterations we release every few months, these flagship sagas are still among the most well-crafted games in today's market, remaining highly attractive to users even after nearly two decades of operation. Over the years, we have built complex and intricate ecosystems within the games, constituting well-balanced, comprehensive economic systems and intimate user networks. We see these games as a work of art and science, and it is ever-evolving as we dynamically adjust the finest details. In terms of newly launched titles, we were extremely excited to see Diablo Immortal enchant tens of millions of players, dominating the iOS top download chart in multiple regions. Diablo Immortal boasts fantastic gameplay that relishes the authentic Diablo experience, which also featuring an MMORPG social experience. where players can share a massive world with others as they explore. We are working hard to keep it fresh and plan to continuously introduce exciting new content for Diablo Immortal in a fast-paced manner to keep players engaged. Diablo Immortal's debut was also a huge opportunity for us to showcase our world-class development capabilities. Leveraging Messiah, our robust self-developed game engine, Diablo Immortal underscores our proficiency in producing top-quality games on mobile devices. Over the years, our team has worked hard to recreate the Diablo sensation on mobile, putting great effort into every detail of the game and overcoming countless barriers along the way. In the second quarter, Naraka BladePoint maintains strong engagement levels as we introduce a series of content updates. By the end of May, the game has sold 10 million copies worldwide since its release about a year ago, turning it into one of the best-selling PC games in the world. Along with its one-year anniversary, we recently announced an array of exciting updates for Naraka BladePoint. including a brand new map for the game called Holoroth. Holoroth brings fresh combat experiences to players and a wealth of new features such as weather systems, interactive objects, and new areas to explore, winning wide praise from players. On June the 23rd, we debuted Naraka Bladepoint on Xbox Series XS and joined Xbox Game Pass. In its first two weeks on the market, an impressive one million new players jumped into the game, enjoying the exciting gameplay which had been optimized for the console. The game will next be available on Xbox One. Simultaneously, we are working to bring Naraka Blade Point's authentic melee combat to mobile platforms. Development is progressing smoothly, and pre-registration has been very encouraging, with more than 3 million users already registered without much marketing. Another exciting title that tops the chart in the second quarter was Infinite Lagrange. With new creative social media marketing initiatives, we greatly expanded the game's user base, which triggered wide player interest in our sci-fi SLG title, we are also seeing strong retention of new players, further bolstering our confidence in this promising category. We continue to introduce new gameplay and all-rounded graphic updates on ships, stars, and space stations to further strengthen our leadership in the SLG category. Moving on to our pipeline, In addition to the aforementioned Naraka Bladepoint mobile version, our strong pipeline is bursting with other exciting titles in the making. Harry Potter Magic Awakened is under preparation for global launch following its debut in China last September. With our latest round of beta testing in July, we received very positive feedback from the player community. Together with Warner Brothers Games, We look forward to co-publishing this amazing title for global audience soon. Domestically, our development of Justice mobile game is well on track. Building on the success that our PC phenomenon Justice created back in 2018, Justice mobile game will recreate a vivid world of the Song Dynasty on mobile devices with our cutting-edge game technologies. such as motion capture and global illumination. As a leader in the MMO category, we will keep pushing boundaries and continue to raise the bars for the industry. Justice Mobile Game will no doubt introduce a brand new game experience to the MMO universe and offer players a world of greater freedom and more imagination. We are determined to become a well-respected premium global game content provider on the international stage. Our globalization strategy will be an essential part of the next chapter of our growth story. Our world-class R&D infrastructure coupled with our top talents from all over the world will serve as a strong foundation to build the next sensational blockbusters for players worldwide. we always follow an innovative first approach and look for creative minds with the same passion for games. Through strategic investment and partnership, as well as setting up first-party overseas studios, we've successfully built a strong connection with top talents across the global stage. In the second quarter, we made further progress in our globalization efforts, successfully bringing internationally renowned game veterans to NetEase. During the quarter, we are pleased to have announced that renowned industry veteran, Jerry Hook, a founding member of Xbox Live, and one of the key masterminds behind the Halo and Destiny franchises. Jerry will be heading our newest first-party studio, Jar of Sparks, based in Seattle, We also announced the onboarding of Emil Liang, who had previously spent over 23 years with Ubisoft and was a producer of the Far Cry and Assassin's Creed franchises. We are excited for him to join as a lead producer in our Montreal studio, bringing us more expertise in AAA game production. In Japan, we are also excited to welcome another master producer, Hiroyuki Kobayashi, who was a 27-year Capcom veteran and the producer of Resident Evil, Devil May Cry, Sengoku, Asara, and many other well-known game series. Same as our previously announced overseas studios, our new studios and producers have great autonomy over the games they want to build, allowing these top-notch talents to rise organically and maximize the creative genius in each of them. Now turning to our education business, total net revenues for Youdao were RMB 956 million in the second quarter, and we achieved positive operating cash flow of RMB 104 million in this quarter, despite the challenges faced during the COVID resurgence and business transition. For the second quarter, net revenues from smart learning devices were RMB 240 million, up 16% year-over-year, demonstrating our resilience despite the pandemic's impact on the supply chain and logistics. Our flagship products maintained their remarkable popularity while we released a variety of diversified new products to cover a broader range of learning scenarios. Youdao Dictionary Pen Series and Youdao Listening Pod both led their respective categories during JD.com's June 18th Shopping Festival. In July, we introduced a new product called Youdao Smart Learning Pack our very first learning pack equipped with AI diagnosis and adaptive learning functions. The product satisfies users' needs for reading, listening, writing, and practicing all on one consolidated device. We continue to diversify our product offering in the STEAM education sector, in which we achieved sustainable growth. with gross billions expanding by more than nine-fold in the second quarter year-over-year and over 180% quarter-over-quarter. For example, in the second quarter, gross billions from Youdao International Chess increased by over 60% quarter-over-quarter with an aim to create a comprehensive and user-friendly online learning community We also launched the Youdao Board Game Academy application at the end of last year to better serve our students of Go, chess, and Chinese chess courses. As a result, the monthly average DAUs on this platform has increased over seven times compared with that of the first quarter. Looking ahead, Youdao will continue to upgrade its diversified products and services to empower more efficient learning experiences for Chinese students. Driven by our proprietary technologies, we remain confident in Youdao's development trajectory in the second half of this year. On cloud music, again, a more challenging industry environment and macro headwind. We maintained strong growth in the second quarter and total revenues improved by 29% year-over-year to RMB 2.2 billion. Our membership paying ratio also reached 21%, demonstrating the resilience of our business and high demand for the cloud music immersive music experience, along with users' increasing willingness to pay for premium content. Our online music services MAU stood at 182 million with our DAU over MAU ratio staying well above 30% during the period. Growth margins have continued to improve and reached 13% in the second quarter compared with just 4% in the same period last year. By enhancing our product and community features, And through technological innovation, we are bringing music lovers and artists alike the premium experience they crave. During the period, we launched our new high-resolution audio feature, offering users higher audio quality for an immersive audio experience. Coupled with our seamless listening function, we are committed to bringing users superior sound quality through the latest technology. User interaction is also a key component to the music experience we aim to provide. With our new music-inspired social networking app, Muse, we are utilizing music content to connect users. Within this app, users can connect with others who share similar music tastes based on their listening preferences and personality insights. On the content side, To satisfy the music needs of our younger users, we continue to build our content and give users increasing choices to express themselves. As of June 30, 2022, Cloud Music was also home to over 500,000 registered independent artists with 2.3 million music tracks created by this group of talented musicians. In addition, We are also working in collaboration with top labels to secure more top talent, content, and simultaneously achieving better commercial terms. As for our recently licensed content, we've added multiple licensing agreements with major overseas and domestic music labels such as SM Entertainment, TF Entertainment, YG Entertainment, all of which provide our users with access to more hits at an improved ROI. This will continue to be our goal as we negotiate with multiple copyright holders to bring in music content that resonates with our community and complements our offering. Looking ahead, we plan to keep growing in the scope, content coverage, and community size. Moving on to Yanshan, Our private label brand continues to launch popular products that consumers love across diversified channels in the second quarter. With a goal of bringing consumers products that facilitate a more leisurely and modern lifestyle, Yanshan focuses on its development of high-quality original product design. During the second quarter, we launched a number of popular products, such as handmade vinegar ergonomic chairs, skin-friendly quilts, and Chinese-style fragrances covering food, home furniture, bedding, as well as personal hygiene and maternity products. Lastly, in June, we published our ESG report for 2021, highlighting that we have officially established a dedicated sustainable development department and formed an ESG committee at our board level consisting of three independent directors. In addition, we remained committed to continuing developing our carbon strategy and enhancing more transparent disclosure. In 2021, as part of our environmental and social endeavors, we successfully reduced over 3,800 metric tons of carbon emissions in warehouses, logistics, and packaging sites and donated over RMB 80 million for flood relief and efforts towards pandemic control. In addition to our ongoing work to help students in remote mountainous areas, we also provided a great number of smart hardware, high quality courses, and online learning platforms to rural schools. We were pleased to learn that with our help, Many students achieved positive results in this year's college entrance exam and were successfully admitted to top universities, including Peking University. Across our business, we strive to serve the greater good of society as a whole and use our technology and other resources to support a better future. So far, we are making steady progress in growing our core game businesses and international presence. With the global launch of thrilling new games across different platforms and the establishment of our overseas studios which afford us access to the best creative minds anywhere in the world, we are getting ready for the next phase of our global ambition. This concludes William's comments. I will now provide a brief review of our 2022 second quarter 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 the second quarter were RMB 23.2 billion, or US dollar 3.5 billion, representing a 13% increase year over year. As we disclosed in our earnings release issued earlier today, beginning in this quarter, we've consolidated revenues from certain value-added game services with our online games operations and renamed the category games and related value-added services. We think this is a better depiction of our game businesses ecosystem. In addition to online games, We provide a range of tools and services to our users to enhance their overall gaming experience when they play our games, such as the CC live streaming service, a platform offering various live streaming content with a primary focus on game broadcasting and certain game-related merchandise sales. These revenues were previously included under our innovative businesses and others line items. And historical periods have also been adjusted accordingly. Online game operations are still the primary component of this segment, accounting for nearly 93% of our total games and related value-added services revenue. The ratio is steady with the prior period and same period a year ago. Total net revenues from our games and relative Related VAS were RMB 18.1 billion, up 15% year-over-year. The growth was primarily due to increased revenue contribution from the launch of new games, such as Naraka Blade Point and Harry Potter Magic Awakens, and other exciting games such as Fantasy Westward Journey Online. Net revenues from our mobile games accounted for approximately 66% of net revenues from the operation of online games. Yeodao's net revenues were RMB 956 million compared with RMB 1.3 billion in the same quarter last year. The decline was mainly due to the conclusion of Yeodao's after-school tutoring services for academic subjects under China's compulsory K-9 education system, which were previously included in its learning services back in 2021. Net revenues from cloud music were RMB 2.2 billion, up nearly 30% year-over-year. The increase was mainly due to the increased revenues from membership subscription as well as social entertainment services. Net revenues for innovative businesses and others were nearly RMB 2 billion, up 14% quarter over quarter, mainly due to increased contribution from Yanshan in the second quarter. Our total gross profit margin rose to 55.9% in the second quarter, up slightly compared with 54.5% in the second quarter of last year. GP margin for the games and related value-added services was 64.9%. The majority of our gross profit in this segment is contributed by online games revenue. The contribution from related VAS is relatively much smaller, which carries a lower margin than online games. Therefore, even with adjustments to our line items, Our games and related VAS margin is generally stable, with some narrow fluctuations based on the revenue mix of mobile and PC titles, self-developed, co-developed, as well as licensed games. GP margin for Youdao was 42.8%, compared with 52.3% in the same period of last year. The decline was mainly due to the lower revenue proportion from Yeodao's learning services resulting from the conclusion of the after-school tutoring businesses for K-9 academic subjects. World's profit margin for cloud music continues to improve in the second quarter, climbing to 13% versus 4.1% a year ago. The significant margin improvement primarily resulted from strong top-line growth as well as the improved efficiency of our content investment. GP margin for innovative businesses and others was 25.8% compared with 27.3% last year. The decline was mainly due to the result of decreased revenue from higher margin advertising services. Total operating expense for the second quarter were RMB $8 billion, or 35% of our total net revenues. If we look at our cost composition in more details, our selling and marketing expenses as a percentage of net revenue were 14%, compared with 15% for the same period last year. The change was mainly due to less marketing spend related to Youdao. If we exclude Youdao, our selling and marketing expenses as a percentage of net revenue were 12%, compared with 11% in the same period last year, mainly due to increased spending on certain games promotion during the second quarter. Our R&D expenses were only 3.6 billion, or 15% as a percentage of total net revenue, compared with 17% for the same period last year. We remain committed to investing in content creation and product development we are also seeing leverage in our R&D investment. Our other income was RMB 785 million for the second quarter compared with RMB 28 million last quarter. The quarter-over-quarter increase was mainly due to the exchange rate of the U.S. dollar against the RMB fluctuating over the last couple of periods. Our effective tax rate for this quarter was 22%. As a general reminder, the effective tax rate is presented on an accrual basis, and the tax credits differ from each of our legal entities at different time periods, depending on applicable policies and our operations. Our non-GAAP net income from continuing operations attributable to shareholders for the second quarter totaled RMB 5.4 billion or US dollar 808 million. Non-GAAP basic earnings per ADS from continuing operations for the quarter was US dollar 1.23 or US dollar 0.25 per share. This quarter, we also had RMB 625 million of net income from discontinued operations, which was related to the disposal of the Kaola business. Additionally, our cash position remains strong. As of the quarter end, our net cash position was about 88 billion RMB, compared with 86 billion as of the year end last year. In accordance with our dividend policy, we are pleased to report that our board of directors has approved a dividend of U.S. dollar 0.072 per share or U.S. dollar 0.36 per ADS. Lastly, we continue to buy back shares during the period. Under our share repurchase program for up to 3 billion U.S. dollars, Approximately 24 million ADS had been repurchased as of June 30th for a total cost of approximately US dollars 3 billion. Meanwhile, on the NetEase Yodal purchase program for up to 50 million US dollars, approximately 1.7 million ADS had been purchased for a total cost of about 18 million as of June 30th. In addition, NetEase purchased about 0.8 million ordinary shares of Cloud Music for a total cost over US dollar 8 million during the second quarter. Thank you for your attention. We would like now to open the call to your questions. Operator, let's go to Q&A.
spk07: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are 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 questions to management in Mandarin, please immediately repeat your questions in English. We propose for just a moment to allow everyone an opportunity to signal for questions. We will take our first questions from the line of Yang Bai from CICC.
spk02: Okay, thank you. Thank you, Manager.
spk11: First of all, congratulations on your performance. My question is about the overseas game market. In fact, we have seen that in the past, the company has continued to establish the overseas market and established many workstations. I would like to ask how we should view the future of the overseas layout. OK, thank you, management. NetEase has continuously made efforts in the overseas markets in recent years and has established several game developers overseas. What is our take on the pace of overseas investment in the future? Also, could you perhaps share some colors on the products in development? Thank you.
spk15: The overseas game market is a very important direction for the future of business. As a matter of fact, our company has not received a domestic game license in the past year. Our research and development forces have to face the use of Europe, the United States and Japan to carry out product development. I believe NetEase has gained a lot of development experience in the past 20 years. We are a very effective development company. We are also actively cooperating with overseas creators in various ways to develop game products that overseas users like. Thank you. Overseas market is of great importance for NetEase.
spk04: As everybody knows, in the past year, we've not received any license approval in China, so we have to make the strategic choice to shift some of our R&D resources to the global markets, the European markets, to the Japanese or the Asian markets. So everybody knows that we have a very strong track record in game production. We have very high R&D efficiencies, and we are now working very closely with many overseas developers to find products that will be welcomed by the global game players. We actually do have a lot of products under development, and hopefully you will see some of them being introduced to the market very soon. On June 2nd, everybody saw the success of Diablo that we have posted on Blizzard, and I think it's been a very positive, very strong release of that game.
spk07: We'll take our next question from the line of Thomas Chong from Jefferies.
spk00: We have seen internet companies highlighting about cost deficiencies such as staff cost and marketing spending on the back of global macro headwinds these days. Can management share the thoughts about the outlook about the operating expenses in sales and marketing, R&D, and G&A?
spk16: Thanks.
spk15: I think these costs can't be said to be cutting, it's optimization. The enterprise has to continuously optimize every part of itself. In the process of optimization, there is also a process of reduction, and there is also a process of increased investment. So Wang Yi will continue to do this optimization work. So the question is not about cutting costs. The question is about optimization of costs.
spk04: Sometimes throughout the development operation of our business, sometimes we do cut costs in certain areas or also increase our investment spending in other areas. So NetEase, we will continue to optimize the way we spend the cost structure of the company. Just because there's weakness in the macro doesn't necessarily mean that we have to take certain actions to address that. NetEase, we think very long-term, and we care about the sustainable and long-term growth of the company.
spk12: Thank you. And Thomas, Charles, just to add a bit more, as you can see, we've always been very committed in R&D spending over the past couple of years. Our headcount, total headcount, also remained relatively stable because for us, we think investing into talent, investing into technology is the key competence in us creating the world-class content.
spk04: Thank you, Thomas. Next question, please.
spk07: Okay, thank you. We will take our next question from the line of Connect Phone from Credit Suites.
spk09: Hey, Ding Zhong, Charles, Margaret, 你们好,谢谢接受我的提问。 想请教一下管理层对国内监管的环境的看法, 以及版号批准的预期。 在将来我们减少版号的大环境以下, 我们游戏的发展策略,包括玩法, IP, 投入的方向会有什么改变呢? Thank you. I'll continue to translate. Thank you, management, for taking my question. What's management view on the domestic regulatory landscape and expectation on the Banhao approval? With a likely lower number of Banhao approved in the future, how will this change our game strategy, including JARA, IP, investment, et cetera? Thank you.
spk15: This question, I just answered it. This shows us, on the one hand, We want to expand the market overseas. We want to expand the use of Europe, the United States, and Japan. We want to expand the use of Europe, the United States, and Japan. The second aspect is to give us a warning. We want to cherish the domestic market of China more. We want to actively develop high-quality games. Because for us,
spk04: So I kind of mentioned that in the earlier question, one of the reasons we have to look abroad and be more active in expanding our user base overseas because of lack of in China. And secondly, it kind of tells us that we have to value or cherish the domestic market even more. because Banhao is a very precious resource now. So every Banhao we get, we have to work, putting more effort to make sure every game we develop, launched to the market, will be popular, will be welcomed by the game players in China. Thank you.
spk07: Thank you. Okay, thank you. We will take our next question from the line of Lincoln Kong from Goldman Sachs. Your line is open. Please go ahead.
spk10: Thank you, Mr. Guan. I would like to ask about two questions about the title. One is about the endless days. Mr. Guan just introduced that the popularity of the game and the MAU have increased rapidly in recent months. Can you tell us more about the reasons behind the expansion of the user base? How should we look at the future life cycle of such an SLG type of game? Another one is about the mobile game of Dragon Quest. If we have a board, how do we think about the long-term potential of this type of mobile game? In the current market, there is already a relatively large So my question is about two single game titles. First is on the infinite lag range. So what's the reason behind this title's popular trend in the recent months and why we're seeing such a strong expanding MAU growth? And second is on the Naraka PlayPoint mobile. So from a longer-term perspective, how do we see the potential for the mobile game version? What's our differentiated strategy to penetrate those large DAU-based for battle royale game type, and especially acquiring the market share from those competitors?
spk02: Let me answer Mr. LaFleur's question first.
spk13: Our team is very good at long-term operations. Before this, the DAO of Lagerland's product has maintained a very stable growth. In the second quarter of this year, we launched a new version. This new version received a lot of good reviews and welcome. We also noticed that this new version made many players feel more deeply Sure, thanks.
spk04: The first question is on Infinite Lagrange. So our team actually has strong expertise in running games for a very long period of time. So Infinite Lagrange has actually been in operation for quite a while. We introduced a new version this year, and the game player seems to have loved this new version, which means that the content was strong enough to attract a whole brand new set of game players, and that gives us confidence that we will be able to continue to expand this category. Thank you.
spk14: Let me answer the second question. Although we know that there are already a lot of large DAO digital products on the market, we believe that The game experience provided by NAMACA to the players, especially the game experience of combat survival and the freedom of movement of this series, is very unique. It is also a relatively lacking category on the market. The reason why we lack this category is that we have also done research on it. It requires a relatively strong design ability and technical practice. We have done a lot of basic work on these two points. Thank you.
spk04: So, yes, sure, there are a number of large DAU products in the market that are similar to Naraka. But the reason why we think Naraka Playform has been so successful is because the youth experience it creates is very unique. Experience such as combat experience, free movement in a game. And the reason why in the past that our competitors or other developers have not been able to create a game like Naraka is because this game requires very hardcore players cutting-edge technology to deliver that type of user experience. So again, we will continue to explore various ways to give our users continued good user experience.
spk02: Thank you.
spk07: Okay, thank you. We will take our next question from the line of Alicia Yap from Citigroup. The line is open, please go ahead.
spk03: Okay, hi. Hi, good evening. 管理層晚上好,謝謝接受我的提問。 我的問題是關於這個美股ADR這個退市的風險,還有指示我們香港。 Taiwan Taiwan Taiwan Taiwan Taiwan 我们的ADR是否真的会从美国这边退市呢? 所以希望关于从这边有一些更新的一些想法跟我们分享一下。 So 我自己翻译一下。 Good evening, management. Thanks for taking my questions. My question is related to the U.S. ADR delisting risk. So whether management has any comments on your plans for the primary Hong Kong listing? And if so, what is the rough timeframe that we should expect that to happen? And then if management has any latest update that you could share with us regarding the discussion status between China and US and whether the EDR will indeed be delisted from the US exchange. Thank you.
spk16: Thank you, Alicia.
spk12: Charles, let me answer your question directly in English. So firstly, we are very closely monitoring the situation. As everyone knows, this is a topic or rather this is a question that's beyond the control of an individual company. It is more of a geopolitical issue, but we remain cautiously optimistic that U.S. and China, the two largest countries in the world, and the senior leadership will find the common ground of interest. So we think a kind of a hard landing or decoupling between entirely global The Chinese companies, there are over 200 Chinese companies listed in the U.S. market. We really don't think hard lending or decoupling would take place or rather being accelerated. What we could control, though, is that we are making very proactive preparation for in the event or in a hypothetical scenario, if that extreme situation happened, then NetEase will be prepared to continue being a listed liquid asset. As many of you know, we are in fact the second Chinese ADR that is being dual listed in Hong Kong back in 2020. Although we are currently a secondarily listed status on Hong Kong Stock Exchange, the conversion between secondary listing to primary listing is more of a technical paperwork, or in a joking way, it's more of a lawyer's work. There's no barrier or there's no roadblocks, per se, and the preparation work, some of them, has been undergoing for a while by us. We think if the situation requires, the conversion will be a very swift and smooth process.
spk06: Thank you, Charles.
spk07: Okay, thank you. We will take our next question from the line of Natalie Wu from Hightone International.
spk06: I want to confirm that this is an independent event, right? Do we need to worry about the collaboration with Baoxue now and in the future, especially considering that it will be acquired by Microsoft next year? The second is a very short follow-up. Regarding the endless lagging of the previous question, I want to ask if there is a relatively large increase recently from the Douyin launch plan. If so, what do you think about the benefits? Do you think the cost-effectiveness ratio is higher? Let me check myself briefly. So, good evening. Thanks, management, for taking my question, and congratulations for a very short quarter. My question is related with the recent World of Warcraft mobile game rumor. I just heard that the collaboration has been halted, so I just wanted to make sure If this is an independent event, or should we be concerned regarding companies' future relationship with Blizzard, especially after the Microsoft deal next year? And secondly, very quickly, follow up with Infinite Log Launch mobile game. I was just wondering if the majority of the recent incremental user or booking is generated through the ByteDance game publisher pair initiative, And if yes, how should we think of the related margin profile? Thank you.
spk04: Let me just translate the answer to the first question. So Natalie, like you said, the case on World of Warcraft is an independent one. So our relationship with Blizzard has been very good. And as you've seen, recently we co-developed and co-published Diablo on the world stage and achieved very positive results.
spk12: Yeah, Natalie, for your second question on Infinite Lagrange, the answer is, the short answer is that we, from time to time, we continuously monitor and explore what we think are effective ways of user acquisition and marketing. Douyin, amongst many others, is a conducive marketing channel for certain type of games, maybe not all, For Infinite Lagrange, it works for certain types of marketing spending. But all in all, when we look at overall margin profile of a game, obviously we factor in a lot of considerations, marketing channels, marketing expense being one. But the success, or rather the increasing popularity and success of Infinite Labrange, I don't think it's only dependent on one single source of marketing channel. It played a role, but I think more importantly, the success is underscored by the continuous expansion packs. In particular, the expansion packs that we released in the second quarter was particularly effective.
spk06: Got it. Very clear. Thank you.
spk07: Okay. Thank you. We will take our next question from the line of Charlene Liu from HSBC.
spk05: Thank you. Thank you, management, for giving me the opportunity to ask the question. We understand that Diablo is off to an excellent start, recording amazing downloads and growing billing figures. How would the management evaluate Diablo's performance so far, and what are your expectations on the longevity of the game? Also, what are the key KPIs would you be tracking mainly?
spk02: Thank you very much.
spk04: Diablo has achieved very prominent results on the worldwide stage, and it's a very strong MMO game. And like we've done with many of our Lexi games, we will continue to issue strong content, good expansion packs to serve our global gameplay as well.
spk02: Thank you. Thank you. Next question, please.
spk07: We will take our next question from the line of Alex Poon from Morgan Stanley.
spk01: Thank you, Manager Cheng, for accepting my question. Congratulations on your good performance. I have a first question to ask. Is there any obvious difference between domestic and overseas games in terms of currency and technology mechanisms and design? For example, when Anhei was just launched, some American players felt that the technology was a bit heavy. So I would like to ask, in the future of global mobile game development, will players gradually get used to this technology model, or do we need to make some adjustments in terms of design? My second question is, how is the performance of the X-Box on the console right now? And how should we predict the future of the console on the PS5 and other devices? Thank you. I have two questions. My first question is related to the monetization design between overseas titles and domestic titles. When Diablo was initially released, we saw some comments from US gamers saying the game design is a bit over-monetized. So in future, when we design mobile games, Are gamers going to get used to this kind of monetization or we need to adjust our monetization system to be a little bit lighter? My second question is related to the performance of Naraka PlayPoint on Xbox after its release in June and the timeline for PS5 and other platforms in future. Thank you.
spk02: Our game products provide very good gaming experience to all users.
spk13: We don't only make games that only serve some R-rated players. On the contrary, we hope that no matter how good the players are, they will be able to get very good gaming experience in our games. As far as I know, many players around me, both domestic and overseas, can enjoy this product very well even if they don't spend money. Our product is designed to provide strong user experience for all players. We are not targeting
spk04: only those who pay a lot of money in a game. We want to serve all of our players of all levels equally well. So there are many of my friends globally who have all said they've had a great time playing Diablo without having to spend much money. And it is true, there are many cultural differences, player differences in different regions around the globe, and we will endeavor to provide great experience to players in every country, every region of the world. Thank you.
spk14: Thank you. Like we mentioned in our prepared remarks, Naraka PlayPoint was launched on Xbox and we joined Xbox Live, which brought us
spk04: a lot of incremental uses, particularly console game players. And in terms of PlayStation 5, we're looking at a launch around end of this year or early next year. Thank you. Thank you very much. I think that ends our call.
spk07: Okay, due to time constraints, that concludes today's questions and answer session. At this time, I will turn the conference back to Margaret Shi for any additional closing remarks.
spk04: 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.
spk07: That's Congress Today's conference. Thank you everyone for your participation.
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